Mpumi Mabuza is the acting chief marketing officer at Brand South Africa. Photo: Supplied
By Mpumi Mabuza
Thirty years ago, South Africa entered a democratic new era, bright with hope of a better and more prosperous future. Were the hopes realised? Savvy international investors believe so. In fact, despite South Africa’s challenges, foreign investment is picking up.
PwC South Africa’s recent South Africa Economic Outlook report for 2024 said that the country attracted nearly R100 billion in foreign direct investment (FDI) in 2023. The report said there was a “moderately positive” view on South Africa’s business environment, with positive attributes for investors including certain world class industries, natural resources and a deep capital market.
Research shows that FDI inflows in the past year were equivalent to 1.45 percent of our gross domestic product (GDP), with FDI far greater over the past five years than over the previous decade. The manufacturing sector is the biggest driver of FDI, followed by mining and quarrying and financial services.
Big picture of progress
Despite negative media reports from time to time, foreign investors see a “big picture” of overall progress, growth and promise out of South Africa. South Africa is on track to be Africa’s biggest economy in nominal terms, with an estimated GDP of nearly $400 billion (R7.4bn) this year.
It is evident that the country has infrastructure challenges, but partnerships between the government and the private sector, to improve the efficiency of rails and ports and move forward on major infrastructure projects, are starting to bear fruit.
Furthermore, it is crucial to note that great strides have been made in socio-economic transformation and programmes to improve the economy, governance and international relations.
Investment opportunities
South Africa’s geographic location makes it a strategic entry point to the continent, as well as a convenient location for global “follow the sun” outsourced services.
Cape BPO reports that more than 85 000 business process outsourcing jobs exist in the Western Cape alone. Thanks to the country’s wealth of well-educated, hard-working citizens, organisations seeking offshore skills and remote workforces are spoilt for choice in South Africa. And digital innovation hubs across the country offer investors an opportunity to get aboard early on potentially ground-breaking innovations.
South Africa’s natural resources and mineral wealth remain a compelling area for FDI. The International Monetary Fund (IMF) reports that the global transition to clean energy will drive demand for critical minerals such as nickel, cobalt, lithium and manganese.
Sub-Saharan Africa is estimated to hold about 30% of the volume of the critical mineral reserves, with South Africa, Gabon and Ghana collectively accounting for more than 60% of global manganese. The minerals opportunity encompasses mining and beneficiation, for example, the R4.5bn investment by Nyanza Light Metals and East China Engineering Science and Technology for Nyanza’s 80ktpa titanium dioxide pigment manufacturing plant in the Richards Bay Industrial Development Zone.
The investments by leading auto manufacturers like BMW, Volkswagen, Mercedes-Benz, General Motors, Ford, Toyota and Nissan, who continue to expand their presence in the country, is a key indicator that South Africa’s investment destination equity is firm and expanding. This year alone, Volkswagen announced a further R4bn investment in its Kariega assembly plant in the Nelson Mandela Bay metro, Eastern Cape.
Green industries are another promising area for investors, with scope for investments in renewable energy projects and the as-yet-untapped blue economy. There are significant opportunities through the Just Transition Framework and Just Energy Transition Investment Plan to build capacity for climate change response, as well as through projects to improve water security, commercialise a circular economy and move towards alternative waste treatment technologies.
South Africa has enhanced the investment value proposition with its Industrial Development Zones and a range of financial assistance programmes and incentives for foreign investors in sectors ranging from manufacturing to film and TV production.
It’s no wonder more than 180 Fortune Global 500 companies have a footprint in the country. Investors have no qualms about relocating key staff to set up offices in South Africa either – indeed, South Africa is a popular immigration destination thanks to its natural beauty, temperate climate, modern infrastructure and business opportunities.
The African Continental Free Trade Agreement (AfCTFA) further enhances the South African value proposition, addressing long-standing issues such as ageing border infrastructure and complex regulatory environments across the continent. South Africa shipped its first consignment of products under AfCTFA from Durban on January 31, heralding the start of a potential wave of cross border trade and investment. For foreign investors, the AfCTFA presents the prospect of a massive, more closely integrated market of almost 1.5 billion people.
With the IMF concluding that sub-Saharan Africa’s economy may be on the mend after four challenging years, South Africa is one of the most promising emerging markets for investment, offering a diversity of investment opportunities.
Mpumi Mabuza is the acting chief marketing officer at Brand South Africa, the marketing agency of South Africa, with a mandate to build the country’s brand reputation in order to improve its global competitiveness.
BUSINESS REPORT