Cape Town - Government is hoping to increase foreign direct
investment in new industrial capacity, Economic Development Minister Ebrahim
Patel said on Wednesday.
This would bring greater benefits in the form of technology
transfer and access to markets, rather than takeovers of South African
companies or portfolio inflows, he said in written reply to a parliamentary
"Central to achieving this aim is to maintain
counter-cyclical economic strategies and improve infrastructure and other
economic systems," he said.
"That said, the inflow of portfolio capital in itself
tends to lead to an overvalued currency, which in turn can deter both foreign
direct investment and local investment."
The problem around foreign investment into South Africa is
not the level, but the type of investment.
Since 1994, South Africa has received unusually high levels
of portfolio capital inflows into the stock and bond markets.
According to World Bank data, these inflows averaged 2.4% of
gross domestic product (GDP) from 1994 to 2010, compared to an average of 0.5% for other middle-income
economies as a group.
In contrast, foreign direct investment in South Africa has
remained relatively low, at 1.5% of GDP from 1994 to 2010 compared to 2.9% for
other middle-income economies.
Patel said investment in South Africa was extremely low in
the period leading up to 1994, falling to 15% of GDP in 1993.
Investment relative to GDP climbed from 1994 to 2008,
peaking in late 2008 at just under 25% of GDP - the highest investment rate
But the global economic downturn saw a substantial drop
back to 19% of GDP in the first quarter of 2011, Patel said.
The most recent data, however, point to some recovery. By
the third quarter of 2011, which was the latest available data, total
investment had climbed 4% in real terms, with both private and
parastatal investment rising over 5%.
The upscaling in public investment managed by the presidential infrastructure coordinating commission (PICC) and detailed in the
recent state of the nation address and the budget would certainly crowd in
significant private and parastatal investment, accelerating the recovery in the
investment rate, he said.
The department works with other public entities, including
the Industrial Development Corporation, to ensure both planning and
implementation are in place.
These have been set out in detail in the various strategic plans
and annual reports of departments and public corporations, which were tabled in
In particular, the industrial policy action plan includes
plans for industrial sectors; the mineral resources department is working on
beneficiation plans for core sectors of mining; the tourism strategy is being
implemented; the agriculture, forestry, and fisheries department is
implementing plans for both commercial and smallholder agriculture; the
economic development department is working with the Human Resources
Development Council to align education and training with the new growth path;
the IDC has a range of investment plans in place regarding its areas of
mandate; and the PICC is finalising implementation of strategic infrastructure
"We expect the measures adopted by the PICC, which have
been broadly welcomed by business, to support investor confidence," he