Recent political and economic uncertainty, including the perception of corruption, have clouded investor sentiment in South Africa, auditing firm PricewaterhouseCoopers (PwC) said on Thursday.
A PwC report said trade openness and the efficiency of government regulation were among the most influential factors globally on the value of foreign direct investment (FDI) inflows for a country. Among upper middle-income economies like South Africa, the next most influential factors were the ease of trading across borders and safety and security considerations.
"Foreign investors look to a number of macro factors when considering FDI," PwC economist Christie Viljoen said.
"These not only relate to the economic outlook for a particular country but also policy decisions taken by a government. Investors also tend to be wary of any economic and political uncertainty. In South Africa, recent political and economic uncertainty, including the perception of corruption, have clouded investor sentiment.”
The PwC report identifies political stability, policy continuity, exchange rate stability, labour force affordability and flexibility, safety and security, property rights, state stability, investment freedom and competitiveness of the economy among key variables potential investors will consider in their investment decisions.
The list also includes quality of infrastructure, efficiency of government regulation, control of corruption, rule of law, quality of governance, trade openness, investor protection, corporate tax rate, ease of trading across borders and natural resources.
Data from the United Nations Conference on Trade and Development shows that FDI inflows into South Africa declined from an equivalent 2.3 percent of gross domestic product in 2013 to 0.5 percent of GDP in 2016. PwC estimates a reading of around 0.4 percent of GDP for 2017.
PwC however said President Cyril Ramaphosa had taken steps to address FDI confidence in South Africa, promising in his state of the nation address earlier this year “a major push this year to encourage significant new investment” in the economy.
Ramaphosa has organised an investment conference later this month targeting both domestic and international investors to market opportunities in South Africa.
"With the investment conference approaching fast, it is important to consider what foreign investors are looking for when they consider a direct investment into a specific country," PwC's Viljoen said.
"What do potential investors want to see to improve the attractiveness of an economy to them? These are some of the questions challenging governments and investment agencies worldwide in their quest to attract FDI inflows."