Is competitiveness a prerequisite for FDI? : South Africa & Brazil compared

Venter, Gideon Jordaan (2002-03)

Thesis (MBA)--Stellenbosch University, 2002.

Thesis

ENGLISH ABSTRACT: The relationship between competitiveness and FDI inflow was investigated in this study. South Africa needs FDI to stimulate the economy with the ultimate goal of reducing unemployment and improving the quality of life of the population. Substantial FDI inflow was expected after the peaceful transition to a multi-party democracy in 1994. The data of the IMD World Competitiveness Yearbook (WCY) was used to measure competitiveness. The UN Human Development Index was used to determine the progress of human development. The annual World Investment Report published by UNCTAD was used to determine a framework of the determinants for FDI. The determinant framework as proposed by UNCTAD was used to evaluate the extent and importance of each determinant for FDI. This included the FDI policy framework, business facilitation measures and economic determinants (Market seeking, Resource seeking and Efficiency seeking). The competitiveness of South Africa was evaluated using the IMD WCY measurement. The IMD ranking of South Africa declined after 1994 and then stabilised. The trend of the UN HDI was detailed and the negative effect of HIV/AIDS on life expectancy could clearly be identified. The examination of the FDI inflow to South Africa during the period 1994 to 2000 showed that it did not reach anticipated levels. No correlation between competitiveness and FDI inflow could be found for South Africa. Brazil was selected as a benchmark for South Africa due to its similar social, political and economical structure. Brazil succeeded in attracting substantial FDI inflows after 1994 when its economy was stabilised. Brazil's ranking in the IMD WCY improved during the period from 1994 to 2000. The UN HDI rating for Brazil has improved throughout the past 25 years. HIV/AIDS has no effect on the forecasted national life expectancy figures due to the low infection rate in Brazil. A strong correlation between competitiveness and FDI inflow was found for Brazil. As the competitiveness ranking improved, the FDI inflow into Brazil increased and Vice versa. South Africa and Brazil were compared according to the relative strength of determinants to attract FDI, the strength of each competitiveness indicator and overall competitiveness ranking. South Africa compared very well with Brazil in terms of the FDI policy framework as well as the FDI business facilitation measures. In terms of efficiency seeking FDI, South Africa exceeded Brazil in the strength of its productivity and physical infrastructure, although Brazil was superior in skill level and scientific knowledge of the population. Resource seeking determinants are not strong in both countries. Brazil has an advantage over South Africa in that its population of 160 million is attractive for market seeking FDI. When the FDI inflow per capita was compared between South Africa and Brazil, the poor performance of South Africa was evident. Brazil also outperformed South Africa in terms of the IMD World Competitiveness Yearbook ranking. The IMD uses empirical data as well as data collected through surveys of business people in the ranking process. The survey data capture the perceptions of a country held by potential investors. Often perceptions override empirical data during the investment decision. The reason for South Africa's poor FDI inflow performance during the period 1994 to 2000 is difficult to resolve. The benchmarking with Brazil showed that the strength of the determinants (excluding market seeking) was on par with Brazil. The conclusion was made that the importance of various FDI determinants varies between regions of the world. Investment decisions involving Africa are made differently than in for example South America. UNCTAD data showed that resource seeking (oil & petroleum) FDI determinants with a high reward ratio was the only reaIly strong attraction for investment in Africa. The negative perceptions of Africa including civil unrest, famine and economic instability continue to influence the FDI inflow to South Africa. Although efficiency seeking together with a FDI policy framework and business facilitation measures attract FDI to a country in South America (Brazil), it is not sufficient to attract FDI to a country in southern Africa (South Africa). South Africa must change the international perceptions of the continent by creating a positive investment climate throughout Africa through strong, responsible leadership. The government must expand the knowledge and skill level of the population beyond basic education to enable them to participate in the international information and technology marketplace. Huge investments are required to create a culture of learning and self improvement in the population of South Africa. A high level of skills and knowledge will attract efficiency seeking FDI.

AFRIKAANSE OPSOMMING: Die doelwit van hierdie studie is om die verhouding tussen die internationale mededingendheid van 'n land en direkte buitelandse investering in die land te ondersoek. Suid-Afrika benodig direkte buitelandse investering om die ekonomie te stimuleer met die doel om werkloosheid te verminder en die lewenstandaard van die bevolking te verhoog. Na die demokratiese verkiesing van 1994 en die vreedsame oorgang tot 'n veelparty regering was daar groot verwagtinge van substansiële buitelandse investering. Die data van die IMD se World Competitiveness Yearbook (WCY) is gebruik om mededingendheid te evalueer. Die Verenigde Nasies se Human Development Index (HDI) is gebruik om die vordering van menslike ontwikkeling te bepaal. Die World Investment Report (WIR) van UNCTAD se raamwerk van determinante vir direkte buitelandse investering is gebruik om die omvang en belangrikheid van elke determinant te bepaal. Die UNCTAD raamwerk sluit die buitelandse investeringsbeleid, die besigheidsfasiliteringsmaatstawwe en ekonomiese determinante (markgedrewe, natuurlike brongedrewe en effektiwiteitgedrewe ) in. Die mededingendheid van Suid-Afrika is geëvalueer op grond van die IMD WCY proses. Die Suid-Afrikaanse posisie op die IMD ranglys het na 1994 verswak, maar daarna gestabiliseer. Die negatiewe effek van MIV/VIGS op die lewensverwagting van die bevolking is duidelik sigbaar in die tendens van die Verenigde Nasies se HDI vir Suid-Afrika. Die direkte buitelandse investeringsinvloei (1994 - 2000) na Suid-Afrika het nie aan die verwagtinge voldoen nie. Daar kon geen korrelasie tussen mededingendheid en buitelandse investering vir Suid-Afrika gevind word nie. Brasilië is geselekteer as 'n maatstaf vir Suid-Afrika as gevolg van die sosiale, politieke en ekonomiese oorenkomste tussen die lande. Brasilië het daarin geslaag om grootskaalse buitelandse investering te lok nadat sy ekonomie in 1994 gestabiliseer het. Brasilië se posisie op die IMD ranglys het gedurende die periode 1994 tot 2000 verbeter. Die Verenigde Nasies se HDI syfer vir Brasilië het verbeter gedurende die afgelope 25 jaar. Aangesien die MIV/VIGS besmettingsyfer baie laag is in Brasilië, het dit geen effek op die lewensverwaging van die bevolking nie. 'n Sterk korrelasie is gevind tussen mededingendheid en buitelandse investeringsinvloei na Brasilië. Soos Brasilië se posisie op die IMD se mededingendheidsranglys verbeter het, het buitelandse investering terselftertyd toegeneem en vice versa. Suid-Afrika en Brasilië is vergelyk in terme van die relatiewe sterktes van die determinante om buitelandse investering te trek, die sterkte van elke mededingendheidsindikator en algehele posisie op die IMD se mededingendheidsranglys. Suid-Afrika het baie goed vergelyk met Brasilië in terme van die direkte buitelandse investeringsbeleidsraamwerk asook die besigheidsinvestering en fasiliteringsmaatstawwe. In terme van effektiwiteitsgedrewe direkte buitelandse investering, het Suid-Afrika vir Brasilië geklop op die vlak van werkerproduktiwiteit asook die beskikbare infrastruktuur. Determinante vir natuurlike hulpbrongedrewe direkte buitelandse investering is nie sterk in enige van die twee lande nie. Brasilië het die verdere voordeel dat sy bevolking van 160 miljoen markgedrewe direkte buitelandse investering lok. Die vergelyking van direkte buitelandse investering për kapita tussen Suid-Afrika en Brasilië het getoon dat Suid-Afrika in hierdie opsig swak gevaar het. Brasilië het ook beter gevaar in terme van die IMD se mededingendheids ranglys. Die IMD gebruik empiriese data sowel as data van meningsopnames van sakeleiers. Die meningsopname data weerspieël die persepsie van sakeleiers oor 'n land. Dikwels kan persepsies deurslaggewend wees tydens die keuse van 'n belegging. Die rede vir Suid-Afrika se lae buitelandse beleggingsinvloei tydens 1994 tot 2000 is moeilik om te bepaal. Die vergelyking van Suid-Afrika met Brasilië het getoon dat die meederheid determinate van Suid-Afrika op standaard is. Die gevolgtrekking is gemaak dat die belangrikheid van determinante vir buitelandse investering tussen lande verskil. Beleggingsbesluite vir Afrika word anders gemaak as byvoorbeeld in Suid- Amerika. UNCTAD toon aan dat natuurlike hulpbroninvestering (olie en petroleum) met 'n hoë winsverhouding, die enigste sterk determinant vir belegging in Afrika is. Die negatiewe persepsies oor Afrika (onluste, hongersnood en ekonomiese onstabiliteit) beïnvloed steeds die invloei van buitelandse belegging na Suid-Afrika. Alhoewel doeltreffenheidsgedrewe buitelandse investering saam met 'n investeringsbeleidsraamwerk en besigheidsfasiliteringsmaatstawwe voldoende is om buitelande beleggings te lok na 'n land in Suid-Amerika (Brasilië), is dit nie die geval vir 'n land in Suider-Afrika (Suid-Afrika) nie. Suid-Afrika moet die internasionale beeld van die Afrika kontinent verander deur 'n positiewe beleggingsklimaat dwarsdeur Afrika te skep. Dit kan bewerkstellig word deur sterk, verantwoordelike leierskap in Afrika deur Suid-Afrika. Omdat basiese opleiding onvoldoende is, moet die regering die kennis en vlak van vaardighede van die bevolking uitbrei. Dit sal die bevolking in staat stel om deel te neem aan die internasionale mark vir informasie en tegnologie. Groot beleggings is nodig om 'n kultuur van kundigheid en selfverbetering onder die bevolking van Suid-Afrika te vestig. 'n Hoë vlak van vaardighede en kennis sal doeltreffendheidsgedrewe buitelandse investering na Suid-Afrika lok.

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