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SA may still surprise on the FDI upside in 2009 - Unctad

Prof Stephen Gelb of The Edge Institute speaking at the release of the UNCTAD World Investment Report 2009. Camerawork: Nicholas Boyd; Video editing: Darlene Creamer.

18th September 2009

By: Terence Creamer
Creamer Media Editor

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South Africa, which recorded a strong rise in foreign direct investment (FDI) in 2008, might still show increased inflows for 2009, despite estimates that global flows would slump from $1,7-trillion in 2008 to $1,2-trillion this year on the back of the global economic crisis.

The latest United National Conference on Trade and Development (Unctad) World Investment Report (WIR), which was globally released on Thursday night, indicated that South Africa recorded FDI inflows of $9-billion during 2008, a substantial increase on the 2007 figure of $5,7-billion.

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The performance bucked the global trend for the year, with the WIP 2009 calculating that total flows slumped from their historic peak of nearly $2-trillion recorded in 2007 to the $1,7-trillion level.

But as was now the norm with South Africa's FDI performance, the 2008 inflows were supported, or distorted, materially by one large deal: the $5,6-billion investment by the Industrial and Commercial Bank of China into Standard Bank.

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But somewhat surprisingly, Unctad's survey of prospects for 2009 still forecast that flows into South Africa could rise in 2009, despite the country's retreat into its first recession in 17 years and the emerging consensus among economists that the country could take longer than many other countries to emerge from the downturn.

The agency's forecast also ran counter to South Africa's performance during the first quarter of 2009, with South African Reserve Bank records revealing inflows of only $1,2-billion, a 79% drop year-on-year.

It was possible, though, that the authors were discounting a tie-up between mobile groups MTN and Bharti Airtel, in which the Indian group might purchase a 49% interest in the JSE-listed company for a cash-and-stock consideration of $14-billion. However, the deal had reportedly hit some legal snags in India, while South Africa's authorities had also indicated recently that their official sanction would be required before the deal could proceed. Therefore, there was some speculation that the merger would possibly not be concluded by its September 30 deadline.

Interestingly, nine South African corporates, including Sasol, Gold Fields, Naspers, Steinhoff, Sappi, MTN, Barloworld, Datatec and Bidvest, made it into Unctad's Top 100 list of nonfinancial corporations from developing countries as ranked by their 2007 foreign assets.

Sasol, with foreign assets worth $8,7-billion, came in at number 22, while diversified industrial group Hutchinson Whampoa, of Hong Kong, China, topped the list, with foreign assets worth $83,4-billion.

Three South African-linked groups, BHP Billiton, Anglo American and SABMiller, were represented on the global Top 100 list, which was headed by General Electric of the US.

FLOWS TO AFRICA PEAKED IN 2008

Meanwhile, however, Africa's six-year run of strong FDI growth would come to an end, with the report estimating that flows peaked at $88-billion in 2008 and would probably fall by about 67% from that position in 2009.

Speaking at the release of the report at a function hosted by the Industrial Development Corporation in Johannesburg, the Edge Institute's Prof Stephen Gelb, who was one of the report's peer reviewers, said that the "good news" for the continent was that the 27% increase in flows during 2008 was the "largest percentage rise of any region".

Further, the continent's FDI stock increased by 20% to $511-billion, while Africa received 5,2% of global flows, which was a marked improvement on the 3,5% of 2007 and nearly back to levels last witnessed prior to the 1970s debt crisis.

The number of greenfield projects rose to 820 from 381, while Ghana, Madagascar and Guinea received more than $1-billion in FDI inflow for first time.

Still, oil producers dominated the top two spots, with Nigeria receiving $20,3-billion in 2008 and Angola, $15,5-billion. Nevertheless, manufacturing FDI increased to $16-billion from $1,4-billion in 2007, while the main sources of FDI inflows remained France, the US and the UK, despite the significant attention given to Chinese FDI across the continent.

But Gelb cautioned that Africa's good performance reflected the delayed impact of crisis, with FDI expected to drop substantially in 2009, especially as resources-linked projects were postponed or cancelled.

Worryingly, FDI inflows accounted for a relatively high 29% of gross fixed capital formation in 2008 and the FDI drop would, therefore, have a knock-on effect on growth and infrastructure development.

GLOOMY GLOBAL PICTURE

But the global picture was also "gloomy", with Unctad economic affairs officer Nicole Moussa, who spoke to her South African audience via video conference from Geneva, Switzerland, warning that the recovery in FDI flows was expected to be slow after the decline of 2009. Flows were expected to climb to no more than $1,4-trillion in 2010 and gather momentum to approach $1,8-trillion in 2011.

She noted, however, that the "FDI landscape" had shifted in favour of developing and transition economies, whose combined share of global FDI flows was 43% in 2009.

Nevertheless, the US remained the largest recipient country, with flows of $316-billion in 2008, followed by France, China, the UK, and the Russian Federation.

"The entry of China and the Russian Federation to the list of top five recipients is symbolic of the changing FDI landscape of 2008," Moussa concluded.

 

 

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