Investment incentives in south africa by emanuel baisire

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1 Investment Incentives in South Africa Investment Incentives in South Africa by: Emanuel Baisire by: Emanuel Baisire George Mason University George Mason University

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Foreign Investment levels remain below average of other emerging markets despite improved macroeconomic conditions and modern infrastructures

Transcript of Investment incentives in south africa by emanuel baisire

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Investment Incentives in South AfricaInvestment Incentives in South Africaby: Emanuel Baisireby: Emanuel Baisire

George Mason UniversityGeorge Mason University

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Investment Incentives in South AfricaInvestment Incentives in South Africa

South Africa Key Facts:•Area: 1.2 million sq. km. (470,462 sq. mi.),Germany, France and Italy

•Population: 46.6 Million (2004)

•GDP: $213 Billion (2004)

•Real GDP growth rate (2004): 3.7%.

•GDP per capita (2004): $3,480

•Exports: US $ 45.9 Billion (2004)

•Imports: US $ 41.6 Billion (2004)

•Inflation: 4,3% (2004)

•Unemployment ( September 2004): 27.8%.

• S. Africa accounts for 38% total Sub- Sahara Africa GDP

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Economic policyEconomic policyPromoting equity with growthPromoting equity with growth

Growth, Employment and Redistribution Strategy

Liberalisation of exchange controls- no controls on foreigners

Inflation targeting to stabilise key price movements

Black Economic Empowerment

Small Business Development

Geographic spread of economic activities

Investment Incentives in South AfricaInvestment Incentives in South Africa

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Economic overviewEconomic overviewComponents of GDPComponents of GDP

Agri. forestry & fishing

3%

Mining & quarrying

7%

Manufacturing18%

Construction3%

Electr. gas & water3%

Trade & accomm.

13%

Transport & com.10%

Financial & bus.serv.

20%

Community & personal serv.

23%

Source: SARB

Investment Incentives in South AfricaInvestment Incentives in South AfricaUnlike, other developing nations , 65% of S. Africa’s GDP (Sector) is in Service sector and 21% in Agriculture and Mining sector

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South Africa identified key economic sectors to act as the engine for economic growthSouth Africa identified key economic sectors to act as the engine for economic growth

• Automotive

• Agro-processing

• Chemicals

• Clothing and Textiles

• Marine, Rail and Aerospace

• Tourism

• Minerals, Metals and Capital Equipment

Investment Incentives in South AfricaInvestment Incentives in South Africa

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The South African Investment EnvironmentThe South African Investment EnvironmentFinancing InvestmentsFinancing Investments

Small and Medium Enterprise Development Programme (SMEDP)

Critical Infrastructure Fund (CIP) Skills Support Programme (SSP) Industrial Development Zones (IDZ) Medium and long term insurance Export finance for capital goods and projects Foreign investment guarantees (FIS) Export and Investment Financial Assistance Scheme (EIFAS) Marketing Support

Investment Incentives

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The South African Investment EnvironmentThe South African Investment EnvironmentFinancing InvestmentsFinancing Investments

Offerings for investors

•Investment advisory services

•Information on specific investment opportunities

•Financial contribution for investors to visit potential companies and sites in South Africa

•Removing obstacles for investors

•Information and advice on investment incentives

•After-care

Offerings for exporters

•Export information and advice Market information

•Export information and advice Market information

•Financial assistance for exporters to conduct market research

•Financial contribution for exporters to market their products abroad

•Logistics support: removing export bottlenecks

•Matching South African companies with foreign buyers

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The South African Investment EnvironmentThe South African Investment Environment

52.15

47.39

43.140.14

4.32

0

10

20

30

40

50

60

1999 2000 2001 2002 2003

Source: World Investment Report 2004

FDI Inflow In U.S $ Billion

FDI: Investments in South Africa (US $ Billion)

Foreign Investment levels remain below average of other emerging markets despite improved macroeconomic conditions and modern infrastructures

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The South African Investment EnvironmentThe South African Investment Environment

Source: SARB

43 2 1 1 1

25

0

5

10

15

20

25

30

UK

U.S

Ger

man

y

Net

herla

nd

Mal

aysi

a

Sw

itzer

land

Fran

ce

FDI Stock in South Africa by Country of Origin in 2003

US $ Billion

U.K. Is the dominant source of FDI ,while the U.S. is the largest portfolio investor in South Africa

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Investment Incentives in South AfricaInvestment Incentives in South Africa

Types of FDI into South Africa in 2002US$M

Mergers and Acquisitions 774.7

Business Expansion 570.10

New (Greenfield) 413.82

Intention to Invest expressed by company 339.50

Investment 15.50

Source: BusinessMap online South Africa FDI database

Investment in South Africa tend to be resource-seeking( food-processing and mining) and market-seeking (Telecom and services) in nature

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Investment Incentives in South AfricaInvestment Incentives in South Africa

Trade Relations

Solidifying relations with traditional markets

– EU-SA: A free trade agreement between the European Union and SA for specified products . EU to eliminate tariffs on 95% of S.Africa Imports in a 10 year period, S. Africa to eliminate tariffs on 86% of EU imports in a 12 year period.

– AGOA: Duty-free and quota-free access to US market for apparel and a range of non-apparel products. S. Africa AGOA exports increased to $1.8 Billion in 2004.

Non traditional markets– Brazil– Asia

Regional Strategy– SADC: Trade agreement with SADC member in 1999, and implementation began in 2000. Provide duty-free treatment for 85% of trade by 2008 and 100% by 2012. – Africa: S. African firms have invested heavily in many African states. E.g $ 1.1 billion in Mauritius, $1.4 billion in Nigeria, $ 605 M in Uganda etc.

South Africa has managed to respond positively to Globalization after several years of South Africa has managed to respond positively to Globalization after several years of sanctions due to apartheid.sanctions due to apartheid.

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The South African Investment EnvironmentThe South African Investment Environment

Stagnant Market: S. Africa’s low average growth rate of 3% have discouraged potential Investors in mass production projects

Regional Instability: Political turmoil in Zimbabwe and civil conflicts in Africa makes foreign Investors to perceive S. Africa as risky

High Crime Rate: Raises the cost of doing business i.e. High Insurance cost, security cost e.t.c.

Labor Policy: S. Africa’ s labor is over-regulated and inflexible which is a constraint to investment

HIV/AIDS: S. Africa is one of the countries most hit by HIV, with 5 million HIV infected population, 20% of the 15-49 year (Work-force) is infected .

Challenges:

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Soccer World Cup 2010Soccer World Cup 2010

Thank you