Attracting foreign direct investment in Africa : South Africa and Nigeria : a comparative study

Kruger, L. S. (2005-12)

Thesis (MBA)--Stellenbosch University, 2005.

Thesis

ENGLISH ABSTRACT: Foreign direct investment is generally welcomed and sought after by developing countries such as South Africa and seen as an important vehicle to raise capital and promote growth. This h as also been recognised by the South A frican government that indicated that foreign direct investment (FDI) has been identified as a requirement in their fight against poverty and to fuel development. South Africa, unfortunately has not been able to attract significant and sustainable amounts of FDI and has been identified by Unctad World Investment Report (2004: 14) as a country that is performing under its potential in attracting FDI. Other countries in Africa like Nigeria seem to be able to consistently attract more FDI while they are less competitive and politically less stable than South Africa. This study seeks to explore the reasons for this disparity in FDI flows with special reference toN igeria a nd South Africa, to assess t he difference inc ompetitiveness between the two countries, to asses the impact of this on FDI flows and to analyse and compare the reasons for FDI in South Africa and Nigeria utilising certain Unctad and WAIPA criteria. The conclusion is that multinational companies are profit seeking and that they will take on considerable risk (such as political instability for example) if the returns are high enough. Nigeria is attracting mostly resource-seeking FDI to its rich oil sector through multinational oil companies that have the technology and capability to extract the oil economically. This is happening regardless of the fact that the country's infrastructure and institutions are weak, widespread violence and political instability is at the order of the day, Nigeria has a small economy (and hence a small market) and is plagued by high levels of corruption. South Africa in contrast, while also having natural resources has attracted mainly market-seeking FDI. The South African markets however are not particularly big when compared to other first world countries and these FDI flows are not sustainable. South Africa would need to concentrate on becoming more efficient if it wants to attract more FDI but will be competing with other countries like Malaysia, India and Eastern Europe in the process that proves to be a challenge currently.

AFRIKAANSE OPSOMMING: Ontwikkelende lande soos Suid-Afrika verwelkom en soek oor die algemeen direkte buitelandse belegging en dit word beskou as 'n belangrike manier om kapitaal te bekom en groei te bevorder. Hierdie beskouing word ook gehandhaaf deur die Suid- Afrikaanse regering wat aangedui het dat direkte buitelandse belegging identifiseer is as 'n vereiste vir die stryd teen armoede en om ontwikkeling te bevorder. Ongelukkig het Suid-Afrika nog nie daarin geslaag om beduidende en standhoudende hoeveelhede direkte buitelandse belegging te lok nie en is deur die Unctad World Investment Report (2004:14) identifiseer as 'n land wat onderpresteer met betrekking tot sy vermoë om direkte buitelandse belegging te lok. Ander lande in Afrika, soos Nigerië, blyk in staat te wees om deurlopend meer direkte buitelandse belegging te lok, terwyl hulle minder kompeterend en polities minder stabiel is as Suid-Afrika. Die doel van hierdie studie is om die redes vir hierdie ongelykheid in die vloei van direkte buitelandse belegging te ondersoek met spesifieke verwysing na Nigerië en Suid-Afrika, om die verskille in kompeterendheid tussen die twee lande te oorweeg, om die impak hiervan op die vloei van direkte buitelandse belegging te ondersoek en om die redes vir direkte buitelandse belegging in Suid-Afrika en Nigerië te analiseer en te vergelyk met behulp van sekere van die Unctad en WAIPA kriteria. Die slotsom is dat multinasionale maatskappye winste najaag en dat hulle aansienlike risiko's sal neem (bv. politiese onstabiliteit), as die opbrengste hoog genoeg is. Nigerië lok meestal hulpbron-gedrewe direkte buitelandse belegging na sy ryk oliesektor deur internasionale oliemaatskappye wat beskik oor die tegnologie en kapasiteit om die olie ekonomies te ontgin. Dit gebeur ongeag die feit dat die land se infrastruktuur en organisasies swak is, wydverspreide geweld voorkom, politieke onstabiliteit aan die orde van die dag is, Nigerië 'n klein ekonomie (en dus 'n klein mark) het en geteister word deur hoë vlakke van korrupsie. In teenstelling hiermee het Suid-Afrika, wat ook oor natuurlike hulpbronne beskik, hoofsaaklik mark-gedrewe direkte buitelandse belegging gelok. Die Suid-Afrikaanse markte is egter nie eintlik groot nie as dit vergelyk word met ander eerstewêreldlande nie en hierdie vloei van direkte buitelandse belegging is nie volhoubaar nie. Suid-Afrika sal daarop moet konsentreer om meer effektief te word as hy meer direkte buitelandse belegging wil lok, maar sal moet meeding met ander lande soos Maleisië, Indië en Oos-Europa in 'n proses wat tans 'n uitdaging blyk te wees.

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