Abstract
South Africa needs to increase its inward foreign direct investment in order to achieve economic growth. The purpose of this article is to explore which intervention could be launched in the short term to enhance the country's attractiveness for foreign investors. The findings of the literature review demonstrated that incentives, as a determinant of investment, are the short-term intervention with the most significant potential to attract additional foreign direct investment. A comparative study, which provided insight into the incentives that are currently offered to the manufacturing sectors of three countries (South Africa, Malaysia and Singapore), assisted in identifying two additional incentives that the South African government could introduce and three existing incentives that could be amended. The introduction or modification of these incentives could ensure that South Africa has a competitive advantage to attract investment from foreign investors and thereby increase South Africa's inward foreign direct investment in the manufacturing industry.
Highlights
South Africa needs to increase its inward foreign direct investment (FDI) in order to achieve economic growth
The qualitative research was performed by means of a literature review, where incentives currently provided by South Africa and two comparable foreign countries, namely Malaysia and Singapore, were identified
Incentives can be utilised by a host country to compensate for unavoidable investment obstacles, to advertise the country as a desirable location for foreign investment and to encourage specific types of investments that generate particular benefits for the economy as a whole (Wentzel, 2010:38-40)
Summary
Developed and developing countries all over the world are increasingly recognising FDI as an important instrument of economic growth for the host country (Asafo-Adjei, 2007:91). Kamath (2008:35) argues that the growth of the economy can be enhanced by FDI because it ”has a positive impact on exports, imports and has greatly contributed to GDP”. This list reveals the economies that transnational corporations selected as the most likely destinations for their FDI in the medium term (UNCTAD, 2012:22) This ranking for prospective host countries, together with the increase in FDI, could indicate that foreign investors have a favourable attitude towards South Africa and have confidence in the country’s potential for growth. Despite this improvement, the 2012 World Investment Report indicates that South Africa ”received less FDI than could be expected based on economic determinants”. Before these problems can be addressed, an understanding of the key determinants that influence the investors’ decision in choosing a host country for investment is necessary
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