Sean Riskowitz | Managing Member | Protea Asset Management LLC | mail me |
As an investment manager investing in South Africa, with our capital exclusively from American investors and being based in New York and Johannesburg, gives me a useful perspective on how SA is perceived by the international investment community.
The good news is that American investors recognise plenty of great opportunities in South Africa. However, we have a little more work to do to translate that appetite into investment.
It is in fact easy to interest investors in opportunities in South Africa. We have great people, competent businesses with good economics, and a relatively large market. Getting investors to move from interest to investing only requires clearer messaging, certainty and alignment between our key stakeholders.
South Africa lags behind our global peers in terms of attracting foreign investment. This is not because of a lack of opportunity. This is merely because investors are confused about the state of South Africa.
To turn this around, South Africa needs to deliver one clear message to the world:
‘We are open for business, and we‘ll do all we can to attract, protect and facilitate investment.’
This is what our fellow Brics economies are doing, and it’s working for them.
A recent United Nations report found that FDI into South Africa hit $7 billion in 2018. And, FDI into India was $43 billion. China attracted $142 billion and Brazil attracted $59 million.
These countries are attracting up to 20 times the amount of foreign investment that South Africa does, despite having equally complex domestic environments. What differentiates these economies from ours is simply that they are committed to attracting investors – in word and in deed.
For South Africa to make a dent in our national challenges of poverty and unemployment, investment needs to increase significantly. Why investment? Because it is the fastest, most sustainable way to create new jobs, new companies, and wealth across the population. These are vital building blocks to eradicate our challenges.
South Africa’s current message to the world is one of relative complexity and internal contradiction.
Take for example property rights. American investors are very confused on this topic. Most South Africans appreciate the nuances around expropriation without compensation to correct injustices of the past. It must be done in an orderly manner. But international investors don’t have this context. And we’re not doing a good enough job explaining it to them.
All an investor sees is a risk that their investment might be taken away. That’s a risk few are prepared to take, and a risk not evidently present in India, China or Brazil. For South Africa to position ourselves as a competitive investment destination, we must create clarity around these issues, and avoid conflicting statements within government. We need to be much better at explaining the local context.
Another opportunity to clarify our message could be for South Africa to recognise the complementary relationships that exist between different stakeholders in our economy.
Perhaps due to the legacy of the past, there remains antagonism between business and labour; as well as between government and the private sector. These differences arise from a misunderstanding of one another, but the irony is that we are all in the same boat, in a symbiotic relationship. We must expend the effort to better understand one another’s perspectives.
No investor fancies involving themselves in an adversarial business climate. If South Africa could honestly deal with the root causes of our internal squabbles, agree that investment is good for the country, and then communicate this unequivocally, investors would be far more confident in placing their money here. And that means more jobs and more wealth for more people. It’s that simple.
Finally, making us a more attractive destination is about ensuring an effective service infrastructure that can facilitate the business that we are trying to attract.
For instance, it is estimated that South Africa needs to build 250,000 houses a year to make inroads into our housing backlog. At present, new housing starts are around 85,000 a year. There are over a million people in South Africa who live in substandard housing – not just informal settlements, but houses designed for four people being home to eight, because there is just not enough supply.
Unfortunately, some of the support functions around housing development are slow and inefficient. It can take several months for electricity to be connected for a new neighbourhood, it if comes at all. We have got to get better at the basics.
This is a handbrake on development and a disincentive for investment. For us to restore the economy, a good place to start would be re-enabling the environment to support production, whether it’s housing, or human capital production.
Fortunately, these fixes are not difficult.
To attract investment, we should ensure that our policy is indeed investor friendly, then communicate that policy clearly, concisely and broadly, apply it consistently, and focus on doing the basics right. South Africa’s solutions are as achievable as that.