FDI stagnant except for Naspers deal

• Without it, flow of foreign direct investment into SA barely grew in 2021

Save for a potentially one-off blockbuster deal involving SA’s biggest company by market value, Naspers, and its Dutchlisted division, foreign direct investment hardly grew in 2021, underlining a daunting task facing the government, which has pinned its economic revival hopes on private sector-led investments.

Save for a potentially once-off blockbuster deal involving SA’s biggest company by market value and its Dutch-listed division, foreign direct investment (FDI) barely grew in 2021, underlining a daunting task facing the government that has pinned its economic revival hopes on private sector-led investments.

Investments into the country surged to $41bn [about R615bn] in 2021, up from $3bn the previous year, thanks to a multibillion-rand deal under which an Amsterdam-listed private equity-style tech investor bought 45% stake in its parent, Naspers, according to a report by the UN Conference of Trade and Development (UNCTAD).

Without the $46bn complex deal, cross-border would remain at the same level as in 2020 when companies across the world were stockpiling cash to navigate challenges posed by lockdown restrictions that cut them off from the customers.

The data from UNCTAD, a body formed in 1964 to promote the interests of developing states in world trade, underlines the task facing President Cyril Ramaphosa, who made increasing investment a centrepiece of his economic strategy when he took office in 2018.

He set a target to lure investments of $100bn by 2023 in an attempt to re-ignite economic growth, which has been falling far short of the 5.4% annual target set in the National Development Plan, the government’s blueprint for eliminating poverty and reducing inequality. Instead, the unemployment rate has jumped to a record of almost 35%.

The uncertainty and lack of confidence caused by the pandemic, coupled with the violence in July sparked by the arrest of former president Jacob Zuma, was widely seen as a setback for SA’s drive to kickstart the economy amid low fixedinvestment levels. Business confidence is a necessary ingredient for investment, which is needed to boost growth and create jobs.

According to the UNCTAD report, global FDI flows broadly showed a strong rebound in 2021, as economies reopened in the wake of Covid-19-induced disruptions. Flows were up 77% to an estimated $1.65-trillion, from $929bn in 2020, surpassing their pre-Covid-19 level.

Developed economies saw the biggest rise by far, with FDI reaching an estimated $777bn in 2021, three times the exceptionally low level in 2020, the report shows. Inflows in the US more than doubled to $323bn, with the increase entirely accounted for by a surge in cross-border M&As.

But recovery in developing economies remains fragile.

FDI flows in developing economies increased by 30% to nearly $870bn, with a growth acceleration in East and SouthEast Asia (+20%), a recovery to near pre-pandemic levels in Latin America and the Caribbean, and an uptick in West Asia. Inflows in Africa also rose. Most recipients across the continent saw a moderate rise in FDI.

“Recovery of investment flows to developing countries is encouraging, but stagnation of new investment in least developed countries in industries important for productive capacities, and key [sustainable development

RAMAPHOSA SET A TARGET TO LURE INVESTMENTS OF $100BN BY 2023 IN AN ATTEMPT TO RE-IGNITE ECONOMIC GROWTH

goal] sectors – such as electricity, food, or health – is a major cause for concern,” said UNCTAD secretary-general Rebeca Grynspan.

The authors of the report also warn that the protracted duration of the health crisis continues to be a major downside risk. The pace of vaccinations, especially in developing countries, as well as the speed of implementation of infrastructure investment stimulus, remain important factors of uncertainty.

Other risks, including labour and supply chain bottlenecks, energy prices and inflationary pressures, will also affect FDI flows in the period ahead.