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Overview
It would come as a welcome surprise to many South Africans to learn that, despite the country’s many challenges, our economy still attracted almost R100 billion in FDI inflows in 2023 – equal to 1.4% of GDP. In fact, while some might expect South Africa’s investment outflows to be larger than inflows, the country has seen a net FDI inflow (inflows minus outflows) in every year since the global financial crisis.
South Africa has many positive attributes for foreign investors, including world-class financial services and communication industries, a deep capital market, quality tertiary institutions producing graduates with internationally-comparable qualifications, abundant natural resources (including renewables), a strategic geographical location for entry into the rest of Sub-Saharan Africa, a transparent legal system, and a certain degree of political and policy stability, among many other features.
The perception among non-residents of South Africa’s public governance and business ecosystem are ‘moderately positive’ on average, according to data and classifications from research by nation branding experts Bloom Consulting. PwC’s review of this data shows that international perceptions of South Africa’s public governance and business ecosystem echo the results from other international benchmarking reports: that South Africa’s performance is near the middle of the pack when countries are ranked, and not as dismal as some might think.
To understand the economic impact of FDI, we modelled the contribution to the economy of a R5 billion brownfield capital investment in a local automotive manufacturing facility. This simulates the investment needed to upgrade an existing factory to produce a new model line. Investing this money in the upgrade of an existing plant – with 58% of the money spent locally and 42% on imported equipment – would create R3.5 billion in additional national GDP, create and/or sustain 9,000 jobs during the upgrade process, and contribute R673 million to the fiscus.
In this edition:
Unlocking Foreign Direct Investment (FDI) as a driver of business and economic development.
What companies can do to increase their attractiveness to foreign investment.
In PwC’s experience, potential foreign investors are looking for three specific things from prospective investment targets in South Africa:
Demonstrating a track record of commercial sustainability across all the systemic crises the country has experienced over the last 30 years. This can be achieved through conducting a financial due diligence (FDD).
Demonstrating that they are well positioned to maintain their performance into the future. That means having relevance in a growth industry underpinned by strong fundamentals. This can be achieved through conducting a commercial due diligence (CDD).
Demonstrating capabilities that can be exported to solve emerging issues in other territories.
Financial due diligence (FDD) provides peace of mind to buyers by analysing and validating the financial, commercial, operational and strategic assumptions being made. It uses past trading experience to form a view of the future maintainable earnings, key value drivers, inherent risks in the business and confirms that there are no 'black holes'. In turn, commercial due diligence (CDD) assesses the historical and forecast assumptions and performance from the perspective of the markets, customers, competitors and internal capabilities of the organisation. The due diligence provides insight of the growth projections used as a basis for the proposed deal.
Key content in this report includes:
FDI trends: South Africa continues to receive strong foreign investment inflows, with manufacturing the most capitalised industry.
What non-residents think about South Africa: moderately positive impressions of public governance and the business ecosystem.
Illustrative example: Economic impact simulation of a R5 billion foreign investment in local automotive manufacturing.
Shine your shoes: what South African companies can do to attract foreign deal interest.
How PwC assists our clients with structuring investment deals and measuring the economic impact of investments.
Register to download:
South Africa Economic Outlook | April 2024
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Contact us
PwC Africa ESG Platform Leader, Strategy& and Chief Economist, Strategy& South Africa
Tel: +27 (0) 82 708 2330
