Repackaging South Africa for foreign investors

OCTOBER 4, 2016

South African investment destinations, such as the Coega Industrial Development Zone (IDZ), have many of the factors in place needed to secure foreign direct investment (FDI). Investors do however want to know upfront if there are any challenges, and how we are dealing with them.

FDI destinations continue to be sought, despite continuing global economic slowdown, which is  evident by the fact that FDI into South Africa increased by R2 089 billion in the first quarter of 2016 compared to same period in 2015, according to the South African Reserve Bank.

More recently, the Coega Industrial Development Zone (IDZ) attracted a R11 billion investment by Chinese auto company BAIC. In 2015 the Coega IDZ signed 17 new investors. Their combined investment value was R26, 99 billion.

Clearly, Coega and other Special Economic Zones (SEZs) in South Africa have what it takes to attract investors. Location is one of seven key factors that attract foreign investors, this was revealed in a study chosen as the best out of 142 papers from 23 universities from South Africa and the rest of the world at the 27th Annual Southern African Institute of Management Scientists (SAIMS) conference.

The other six are basic infrastructure; incentives for land and buildings; export environment; physical infrastructure; export incentives and electricity.

Investors appreciate honest engagement through initial upfront communication price and availability of utilities such as electricity. In the case of the CDC, investors are afforded the comfort by highlighting the Dedisa peaking power plant, R3.5 billion investment with 335MW power ensuring a stable grid and supply of electricity domestically and nationaly. Furthermore, this is also boosted by the IDZ being exempted from load shedding.

Other municipalities do – or should – make similar concessions in order to attract investment. Being able to connect investors to reliable, competitively priced and good quality power supply puts South Africa ahead of most other countries in sub-Saharan Africa.

Another selling point is our geographical position, together with the road, rail and sea connections South Africa has with the rest of the continent.

When it comes to basic infrastructure, again the message is that investors want honesty. Tell them about any gaps in areas such as site maintenance, the availability of water, water quality, ICT and sewerage. Most importantly, we should tell the investor what is being done to overcome or manage the challenge.

SEZs such as Coega can also not be islands of excellence. Research undertaken in Jamaica found that investors also factored in the reliability and quality of the general infrastructure services utilities (water and electricity), airline service, and public transport.

Investors are also looking for incentives that reduce rental or the cost of construction. Making South Africa competitive in this area requires the cooperation of a number of government institutions, the local authorities and business, as well as the operator of the SEZ.

Tax incentives are also needed to attract investment. The introduction of incentives for SEZs by the Department of Trade and Industry (dti) places South Africa in a stronger position to attract investment.

The CDC is globally competitive when it comes to offering investors what they want – a lower cost of doing business and access to key markets.

Armed with this knowledge and assurance, South Africa can be far more aggressive marketing the country as an investment destination. 

Caption: Thembinkosi Maduna, Operations Executive Support Services argues that South African investment destinations have many of the factors in place needed to secure foreign direct investment (FDI)