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Economic Update for South Africa

28 November 2011 Paul Jooste, senior manager portfolio business, Coface South Africa

The ability to attract foreign direct investment into South Africa is influenced by a number of factors.

Credit management within a country is a critical element in supporting foreign direct investment. An efficient credit market is crucial. Credit information helps lenders view the potential borrower’s financial history and their payment records.

Other factors include the country’s collateral and bankruptcy laws, and the legal rights of borrowers and lenders.

The recently published Doing Business report released by the World Bank has ranked South Africa as one of the top countries in the world when it comes to accessing credit.

The rankings took into account a variety of questions relating to country framework and structures. Based on the credit information index and the strength of creditor legal rights, the ranking is calculated across 182 countries.

South Africa’s score was shared with only two other countries, United Kingdom and Malaysia. The score not only reflects the first-world laws South Africa has in place, but also the transparency of credit bureaus, largely due to systems put in place by the NCA.

Access to Sub-Saharan African markets and the well regulated business environment are reasons for South Africa’s ranking in the top-mentioned countries for foreign direct investment by transnational companies surveyed in UNCTADS’s World Investment Prospects Survey 2010-2012.

It is interesting to note that South Arica is the only African country to appear in the list of top priority host economies and appeared for the first time in 2010.

South Africa’s legal, financial and business infrastructure does make it an attractive option when looking at investing in Africa. There are however some concerns regarding other areas such as Trading Across Borders where South Africa was placed 144 out of 183 countries. Comparative figures reveal inefficient and inadequate infrastructure, as well as excessive bureaucracy and burdensome customs procedures.

The current draw card for international investors is to use South Africa as a stepping stone into the rest of Africa. But if South Africa is to remain attractive, it is important that these inefficiencies are addressed.

Another major area of concern is the “Getting Electricity” ranking in the world bank report. Access to this resource is vital in all modern economies. This rating measured the ease of obtaining a connection to a local power supplier and the amount of days as well as the total cost involved in doing so. South Africa was ranked 124 out of 183, coming in well below Mauritius, Botswana, Namibia and Kenya.

The average time taken to establish a new electricity connection in South Africa was calculated to be approximately 226 days compared to 91 days in Mauritius and 121 days in Botswana according to the World Bank report.

With the continuing turmoil in the developed economies, it is critical for South Africa to remain as attractive as possible for foreign direct investment. While the country is seen in a relatively positive light, eliminating stumbling blocks can only assist in the positive placement of South Africa in attracting foreign direct investment.

It is interesting to note that South Arica is the only African country to appear in the list of top priority host economies and appeared for the first time in 2010.

South Africa’s legal, financial and business infrastructure does make it an attractive option when looking at investing in Africa. There are however some concerns regarding other areas such as Trading Across Borders where South Africa was placed 144 out of 183 countries. Comparative figures reveal inefficient and inadequate infrastructure, as well as excessive bureaucracy and burdensome customs procedures.

The current draw card for international investors is to use South Africa as a stepping stone into the rest of Africa. But if South Africa is to remain attractive, it is important that these inefficiencies are addressed.

Another major area of concern is the “Getting Electricity” ranking in the world bank report. Access to this resource is vital in all modern economies. This rating measured the ease of obtaining a connection to a local power supplier and the amount of days as well as the total cost involved in doing so. South Africa was ranked 124 out of 183, coming in well below Mauritius, Botswana, Namibia and Kenya.

The average time taken to establish a new electricity connection in South Africa was calculated to be approximately 226 days compared to 91 days in Mauritius and 121 days in Botswana according to the World Bank report.

With the continuing turmoil in the developed economies, it is critical for South Africa to remain as attractive as possible for foreign direct investment. While the country is seen in a relatively positive light, eliminating stumbling blocks can only assist in the positive placement of South Africa in attracting foreign direct investment.

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