Wednesday, July 27, 2011

South Africa and Foreign Investment

This first appeared on John Campbell's Africa in Transition.
Yesterday, I had a discussion with a few students about the various lenses through which different American communities view sub-Saharan Africa. I chose to talk about the business community, civil society, and the federal government.

One view that seems to be quite common among the American business community is Africa’s enormous untapped economic potential. However, clearly, that hasn’t translated into the investment necessary to tap that potential. I speculated that this timidity was related to a number of issues, including the widespread poverty of African consumers and our lack of nuanced understanding of the African business climate.

Interestingly, South Africa, despite its highly developed (and Westernized) business climate, has also failed to attract significant foreign investment.

In the most recent installment of the World Bank’s biannual “South Africa Economic Update,” released last week, the authors emphasize that now is the time for South Africa policymakers to start focusing on the country’s medium term growth prospects, including working to attract more private investment, to reduce its sizable unemployment.

The authors note that South Africa actually provides favorable and rising returns on investment but that “risk perceptions or structural barriers to investment” likely impede foreign firms.

However, the report’s authors believe that South Africa’s economic problems can be overcome by promoting policies that generate higher employment, productivity, savings, and investment to kickstart a "virtuous cycle of inclusive growth.”

An added advantage for American business is that establishing a foothold in South Africa could make it easier for private firms with little or no Africa experience to begin expanding into the continent, helping to provide the much needed investment and employment that Africa needs.

Read the report here.

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