The recent visit by Deputy President Kgalema Motlanthe to the United Kingdom, where he articulated South Africa’s position as a strongly emerging country worthy of foreign direct investment, would have done much to highlight the potential of the Rainbow Nation as an investment environment.

Yet, the country will have to deal with one dangerous ‘intruder’ that is compromising South Africa’s position as a sought-after global investment destination. And that intruder is the perception about South Africa as a potentially risky environment for investments in production and manufacturing, particularly in the mining industry.

This is according to South African economists and financial experts interviewed by Opportunity magazine.

Both Motlanthe and Minister of Mineral Resources Susan Shabangu met investors in the mining sector on the visit to the UK and emphasised that South Africa is committed to an efficient, fair and transparent business environment, including security of tenure and the processing of mining licences.

Motlanthe described the mining sector as critical and a “continued backbone of the South African economy”.

He felt the visit was a success. “We met a number of investors, analysts and business representatives here in London and managed to put our position on a number of issues quite clearly.

“Where there may have been concerns about certain issues surrounding the mining industry in our country, we managed to address these and are leaving with a sense that there is no trepidation about continued investment in mining,” he said.

Motlanthe met with his British counterpart, Deputy Prime Minister Nick Clegg, and the two expressed the desire to actualise the commitment to double trade between the two countries by 2015. In this regard, Motlanthe highlighted the enthusiasm on South Africa’s part to double trade on all economic sectors.

He noted that the 2010 Fifa Soccer World Cup had changed perceptions and accelerated skills development.

Motlanthe added that in a World Cup survey conducted by YouGovStone.com, a positive shift in attitude toward South Africa was apparent.

The survey further revealed:

• Seventy-two percent believed the World Cup would have a very positive or positive legacy for South Africa – compared to the 29% of those polled before the event, who had thought it would be a success;

• Fifty-four percent thought that it would bring great benefits to South Africa;

• Sixty-one percent said that, as a result of the success of the World Cup, they thought South Africa would be a good place to hold global events of all kind; and

• Forty-two percent of those surveyed felt more positive about visiting South Africa as tourists.

Motlanthe spoke at length about the skills transfer that benefited many South Africans during and after the Soccer World Cup tournament.

The South African tourism skills and service excellence project exposed 14 218 frontline staff to service excellence training, and approximately 15 000 volunteers worked in various areas of the tournament.

The World Cup was the single biggest event that developed skills through volunteerism, particularly for the youth.

The highlight of the deputy president’s visit was his address at The Economist Summit on Emerging Markets, where he articulated Africa’s position as a strongly emerging region worthy of foreign direct investment.

Motlanthe further showcased South Africa as a global tourism attraction par excellence.

The tourism sector will be a key growth industry for South Africa in the coming years, with a target of at least 15 million tourists per annum. The country is currently operating at approximately 10 million per annum.

Observers at The Economist summit were heartened by South Africa’s overall economic position and image as a vintage investment destination.

South Africa, the powerhouse of the continent

South Africa is the economic powerhouse of the African continent, with a gross domestic product of R1.9 trillion – four times that of its southern African neighbours, and comprising 30% of the entire GDP of Africa, said Sidwell Medupe, media spokesperson for the Department of Trade and Industry (dti).

The World Economic Forum’s “Global Competitiveness Report 2008–09” ranked South Africa 45th out of 134 global nations.

South Africa’s GDP grew at a healthy 5.2% in 2007, and a lower 3.1% in 2008 due to the impact of the global economic crisis.

It is one of the most sophisticated and promising emerging markets, offering a unique combination of highly developed first-world economic infrastructure, with a vibrant emerging market economy.

Furthermore, South Africa is one of the highest ranking developing economies and surpasses countries such as Hungary, Italy, Brazil and Thailand. The country leads the continent in industrial output (40% of Africa’s total output) and mineral production (45% of total mineral production) and generates most of Africa’s electricity (over 50%), according to the dti.

The cost of doing business in South Africa compares favourably to other emerging world markets.

According to an annual World Bank study, “The Ease of Doing Business Index”, South Africa ranks 32nd out of 181 of the economies surveyed in 2009 for ease of doing business.

The country boasts the lowest electricity prices in the world and, despite looming challenges in this sector, doubling its electricity price will still place it as the cheapest provider, said the dti.

South Africa boasts one of the most modern and extensive transport infrastructures in Africa. This plays a crucial role in the country’s economy and is depended on by many neighbouring states.

The national airline carrier, South African Airways, is an incorporated public company owned by the South African government. The airline serves more than 700 destinations globally and carries more than seven million passengers a year

Today, South Africa is not only self-sufficient in virtually all major agricultural products, but in a normal year, it is a net food exporter. Over the past five years, agricultural exports have contributed on average about 8% of the total South African exports.

Dutch and Spanish investment aid

The Netherlands has acknowledged South Africa as a new investment market that is expanding rapidly. The Dutch Ministry of Foreign Affairs finances companies that wish to invest in South Africa, together with a local South African company. These companies can receive a contribution of 50% of the total project costs.

Spain also has richly invested in South Africa, and specifically in Cape Town, according to Linda Krige, spokesperson for www.sagoodnews.co.za.

She said the City of Cape Town has partnered with Spain’s city of Barcelona to develop a long-term strategy to increase the number of entrepreneurs.

City of Cape Town executive director for Economic, Social Development and Tourism, Mansoor Mohamed said the aim was to set up an “entrepreneurship ecosystem” in the city to make life easier for those starting small businesses.

“Everyone in Africa who has a business idea and needs access to entrepreneurship and innovation will know they can come to Cape Town because we will have the best developed entrepreneurship ecosystem,” he said.

“The City of Cape Town’s vision is to set up an entrepreneurship ecosystem based on similar principles to those employed so successfully by the city of Barcelona.

“We want people to recognise the talent base sitting in Cape Town. We would like to see businesses establishing themselves here and making productive use of our youth who have lots of capability, but are struggling to find employment,” added Mohamed.

The Barcelona programme, known as Activa, was launched in 1986 as a way of reducing unemployment in the city.

“The view when Activa was created was that if people were self-employed, they would not only have jobs, but create jobs,” Activa’s chief executive officer Anna Molero told Sapa in Cape Town.

“It worked. The businesses that come through Activa have a 70% success rate and, today, Barcelona is one of the entrepreneurial capitals of the world.”

Since its establishment, Activa has coached 11 893 business projects and created 11 000 new jobs.

Reservations about SA

Dawie Roodt, chief economist of the Efficient Group, said South Africa has attracted R100 billion in 2010 in investments, of which 75% is in the capital markets, and the rest in the stock exchange.

It is well controlled, but international investors could remove these investments with the push of a button if trouble is brewing and the investment returns are not good.

“Just imagine what it would mean for South Africa if this R100 billion will be invested in factories and on the production side,” said Roodt.

South Africa will have to look at its labour legislation and the high levels of crime, as well as the perception internationally about the lack of corporate governance by the Department of Home Affairs.

The fanfare surrounding the nationalisation of mines as well as the fact that the government has not been able to allay international investor fears surrounding it, would have sent the wrong signals to potential investors, Roodt warned.

Recently, at the Discovery Leadership Summit in Sandton, Rudy Giuliani, former mayor of New York, said the South African government needs to make it clear to foreign investors that the country is a safe environment in which to do business.

“Government needs to find out what is needed and create an environment to bring business here,” he said.

Giuliani, well known for his time as mayor during the 9/11 terror attacks, said New York lured businesses back into the city by reducing crime and improving schools.

He added that advertising these changes was central to the success of boosting the economy.

Ulrich Joubert, an economist at Kruger International, said potential investors in South Africa may be hesitant to invest in factories locally because they may opt for other, more attractive destinations such as Vietnam and China simply because of production costs.

“It is simply because the labour environment in Vietnam and China is more labour intensive. The state’s policy has stimulated consumption, but not production,” he said.

“Other factors must also be taken in consideration, for example, what it will cost potential investors in terms of hiring a private security firm to protect their investment because of the levels of crime in South Africa.”

Fanie Heyns