There are a host of factors affecting investment decisions that governments cannot control. Think of natural resource endowments, proximity to major markets, the climate or even inherited developmental legacies. With our global economy’s sustained dependence on oil and gas, surpluses of these commodities to export may still ensure countries certain advantages in attracting foreign direct investment (FDI). Or, where other factors combine with a low development base, rates of return may also be promising.
Finance Minister Pravin Gordhan was in the UK last week to defend South Africa’s position among the “next key high-growth markets” or “New Brics” (Bric referring to the most established club members: Brazil, Russia, India and China). Only a few of the New Brics (Saudi Arabia, the UAE, Qatar, Russia and, less notably, Brazil and Malaysia) will see their future growth supported through energy exports. Of the less developed, probably only India and Vietnam could base their future economic sustainability somewhat on their low current levels of development. This means, in vying for FDI, non oil-exporting or more developed New Brics still have much room to manoeuvre based on their institutions, policies and people development. Singapore, which attracts the most FDI by far, shows this includes even the most developed of non-oil exporters.
South Africa should be concerned, since the World Economic Forum’s recently released Global Competitiveness Index (GCI) for 2010/11 shows our competitiveness among the New Brics is declining. Having ranked 9th out of the 17 economies for the prior two years, we have dropped to 11th position in the latest report. India and Indonesia now rank ahead of us, along with other sterling, non oil-based performers such as Thailand, China and Taiwan. Mexico, Argentina and Turkey have on average proved less competitive than SA over the last three years, but now also threaten to become stronger FDI magnets.
Why is this?
Through the GCI, business leaders are basically saying that they are struggling to pull more capital into job-creating projects locally, because of six key priorities over which South Africa’s government has control, but in terms of which prospects for timeous improvement are either bleak or unclear. These include:
• The quality of our electricity supply;
• The cost and availability of fixed-line telephony, mobile telephony and broadband services;
• Too much freight on our roads and too little synergy and capacity between rail and port links;
• Neglect of our human resource endowment through restricted access and uneven quality of basic healthcare and primary education services;
• The quality of our maths and science education, as well as occupational training and tertiary education throughput figures; and,
• A host of inefficiencies in our labour market, including the inflexibility of wage determination and hiring and firing practices, as well as the relationship between pay and productivity.
At the ANC’s National General Council (NGC) in Durban this week, economic policy will form a key part of the battle ground. As indicated by their various discussion documents, all three of the alliance partners will to some degree make reference to the six priorities listed above, but it will at best be disjointed, here and there agreeing on eventual socio-economic outcomes, without clear agreement on how we are to get there. Other political actors and civil society constituencies have been similarly incoherent or inaudible on the primacy of these priority areas in the run-up to the NGC.
Instead, the issues that are sure to dominate are much less related to the need to grow employment through higher levels of FDI and much more with the increasingly internally fractured and outwardly megalomaniacal nature of the governing party and the tripartite alliance. They are the same issues that also dominated press coverage of Minister Gordhan’s presentations in the UK last week, namely the push from within the ruling party to nationalise the mines and muzzle the press.
This can only mean one thing: that as much as we would like to deny it, the international press and investor community are onto us as a country and an economy obsessed with its navel, while true priorities that may support sustainable economic growth and job creation are left to flounder. If this conclusion is as true as it is reasonable, the logical end will be that the more external orientation of some of the 16 other New Brics may soon, along with their other comparative advantages, make us forgotten as part of their important club in the minds of international investors.