SA foreign investment doubles

Johannesburg - Although foreign direct investment last year contracted by one fifth globally and is expected to decline further this year, fixed investment in South Africa more than doubled.

According to the United Nations Conference on Trade and Development (Unctad) latest report on fixed investment, it contracted by 21% worldwide while growing 111% in South Africa.

This growth is, however, unsustainable because of the drying up of credit due to the global financial crisis. Most fixed investment is funded by debt.

Resources prices are also placing pressure on the ability of mining companies, in particular, to meet their loan obligations.

South Africa was the destination for $12bn worth of fixed investment, or R2 500 per South African. This is 111.2% more than in 2007, says Unctad.

Almost one in every five dollars worth of fixed investment into Africa came to South Africa, according to the agency.

But the sustainability of investment flow into South Africa will come under severe pressure.

Razia Khan, Africa economist at Standard Chartered, supports this view, referring to the global economic downturn, weaker resources prices, a reduced appetite for mining assets and South Africa's own slower economic growth.

The evaporation of credit is the final straw. Khan reckons that although the domestic economy should start returning to normal growth by 2010, fixed investment will not necessarily be resource-related.

"An interesting aspect to keep an eye on is fixed investment flow between emerging markets," she says.

- Sake24.com

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