South Africa’s winter news flow has not been encouraging.
We have had protracted and sometimes violent strike action. Poor management around the issue of the appointment of a Chief Justice ultimately led to Sandile Ngcobo withdrawing his acceptance of the extension of his term of office. At the time of writing, President Jacob Zuma had, quite astonishingly, failed to respond to a devastating report by the Public Protector, who found that South Africa’s top cop and a Minister had behaved appallingly in the signing of property leases. Police slayings continue, as do incidents of abuse of citizens by some policemen. There is rising concern about the manipulation of government tenders and the likelihood that such manipulation is helping to enrich politically connected individuals. Foreign direct investment (FDI) flows into South Africa have softened and government’s handling of the Wal-Mart matter is sending worryingly mixed signals. There is a strong suspicion that some businesspeople have been prepared to behave fraudulently to obtain lucrative mineral assets. Even the weather conspired to close South Africa’s main trade artery between Durban and Johannesburg.
The only consolation is that the news from the rest of the world is equally depressing. These stories centre on the political mismanagement of the sovereign debt crisis in Europe, the brinkmanship over the debt ceiling in the US, horrific acts of terror in Norway and a train disaster in China that has raised serious questions about manufacturing quality and the role of corruption in that country’s large-scale infrastructure programmes.
But there is another reason for South Africans to take heart: the fact that this country is on the right side of what will undoubtedly be the mega trend of the current century.
That mega trend relates to the growing importance of developing economies and the shift in economic power from West to East, and from North to South.
The United Nations Conference on Trade and Development’s ‘World Investment Report 2011’ provides a timely reminder that this shift is well and truly under way.
The report shows that, for the first time, in 2010, developing and transition countries accounted for more than half of all FDI inflows –notwithstanding South Africa’s own dramatic slump, as well as a downturn in Africa more generally. Overall flows rose by 5% to $1.24-trillion, with flows to developing economies rising by 12%.
Also for the first time, half of the top 20 FDI recipients were from developing countries, with the US still attracting the most inflows, at $228-billion, followed by China ($106-billion) and Hong Kong-China ($69-billion). Outward flows from developing countries also surged by 21% to $388-billion, increasing outward flows from developing economies from 16% of the total in 2009 to 29% last year.
The report also shows that investment activity by the 100 largest multi- national corporations, such as General Electric, has “shifted decidedly” towards developing and transition economies. Comparing international greenfield projects between 2007 and 2008, and 2009 and 2010, the number of projects targeting these economies increased by 23%, compared with only a 4% rise in developed economies.
In addition, developing economies played an important role in restoring the corporate profits of giants such as Coca-Cola and Toyota, which had been slashed by the crisis, but have now rebounded sharply.
But being on the right side of a trend will not be sufficient to ensure that one benefits from it. South Africa – through improved governance, sharper strategy and policy and, crucially, through ensuring an improved return on its investments in education – has a chance to reverse the depressing news flow, and put itself in a strong position to surf the new world economic flow.