South African President’s $100bn investment dream may soon become a reality with the help of the World Bank

Compared to other African countries, the potential attractiveness of South Africa is high; the country is among the top investment destinations on the continent. However, there has been a noticeable decline in investment flows in recent years, no thanks to protracted political tensions, land reforms and policy uncertainty. The World Bank on its part has decided to partner with South Africa to improve its business environment and enhance FDI inflows.

On Monday, March 11, an Advisory Services Agreement was signed between South Africa’s Department of Trade and Industry (dti) and the World Bank Group, a partnership aimed at improving the business environment for domestic entrepreneurs; business regulation; investment policy/ institutional reform and market regulation as well as enhancement foreign direct investment inflows.

As measured by the World Bank’s Doing Business report, research shows that better business regulation is associated with higher levels of foreign direct investment. FDI can either impede or promote domestic investment depending on how business-friendly entry regulations are in the host economy.

According to data published by United Nations Conference on Trade and Development (UNCTAD) in the 2018 World Investment Report, FDI inflows contracted by 41 percent between 2016 and 2017, reaching USD 1.3 billion. South Africa declined from an equivalent 2.3 percent of gross domestic product (GDP) during 2013 to 0.5 percent of GDP in 2016 and an estimated 0.4 percent of GDP in 2017. The value of South Africa’s FDI inflows during 2010-2016 was equivalent to an average of 1.2 percent of GDP‚ compared to a global mean of 5 percent of GDP.

South Africa ranks 82nd out of 190 economies in the World Bank’s 2019 Doing Business report. The country has many attractive assets for investors but it suffers from a high crime rate, increasing social unrest, corruption, and structural issues in electricity supply and logistics. All these issues,
coupled with the recession the country slid into has had an effect on investors’ confidence as many are worried about the lack of clarity concerning policy and structural reforms.

The Advisory Services Agreement signed in partnership with the World Bank World would ensure favourable policy and structural reforms that will ensure South Africa is a favoured destination for business.

World Bank support to South Africa as signed in the Advisory Services Agreement will be provided in partnership with the Swiss State Secretariat for Economic Affairs and the Prosperity Fund of the UK’s Foreign and Commonwealth Office. The project will deploy a Country Private Sector Diagnostic, a standard World Bank Group tool to identify industry sectors that can attract significant domestic and foreign investments and deliver positive development impacts in the near term.

According to Director General at the trade and industry department, Lionel October, the department will gain insight into best practice from the partnership. “I would like to assure you that we are committed to addressing the employment deficits that we face, and this will start with providing the right environment for the private sector to flourish. The four-year programme will be led and coordinated by InvestSA,” October said.

South Africa’s President Ramaphosa’s has a target to attract $100 billion Foreign Direct Investment into South Africa within the next five years, starting this year. October stated that “Support from World Bank Group and its development partners promotes South Africa’s growth agenda. The dti and InvestSA hope to gain insights into best practices from the partnership.