South Africa falls off the map by Mike Schussler (www.moneyweb.co.za), 3 May 2018

9 May 2018

South Africa has dropped off the investment radar of firms and business people. It is a dark reality that a few investment lions are not going to fix.

About seven years ago I was phoned by agents who arrange for their clients to talk to researchers in a country they are interested in investing. The money was good, and as I knew the South African economy quite well, the conference calls became quite an income for my business.

Then one agent asked if I could talk about Angola and Nigeria instead of South Africa, but I felt I did not know enough so recommended someone else. Another agent asked about Angola too and later about a host of other African countries.

I asked the agent what about South Africa, and she simply said no one is interested in South Africa at the moment, it has dropped off the horizon. Another agent a while later confirmed that their clients no longer think that South Africa is an investment destination.

“Our surveys show that clients don’t want to know about South Africa; it attracts no attention anymore.”

International surveys show the same sorry state with three international surveys indicating how SA has dropped from the 28th highest ranked country in the WEF global ranking to 61st in 2017. The IMD Global Ranking has SA dropping to 53rd from 37th out of 63 countries. In ten years.

The World Bank Doing Business index has seen SA drop from 28th place to 82nd place in a decade.

I’ve heard the tragically misinformed talk show academics trash these surveys as biased; the hard evidence has come in the form of actual investments.

The massive jump to the left in 2007 by the ANC and the corruption right at the top of the country has destroyed investment and at least a million jobs if not three or four million jobs.

Hard evidence also shows SA may have lost three million jobs.

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Net foreign direct investment is the difference between South African companies investing abroad and foreign countries investing here. If it is negative, it means that more South African firms are investing elsewhere than foreign firms are investing here.

Expressed as a percentage of GDP shows that it reached 24% of GDP in 2005 and the low was at the end of 2017 when the net FDI was -31% as a percentage of GDP.

In money terms, SA firms had fixed investments of R3.3 trillion in other countries while the world had fixed investments of R1.8 trillion. SA was therefore R1.5 trillion more invested in the world outside of SA than the world invested here.

The surveys gave SA warnings that investors took note of low growth; crime; corruption and extremely bad attitudes to business.

In today’s terms, we have gone R1.2 trillion net positive FDI to negative R1.5 trillion a net loss in fixed investment of R2.7 trillion!

At the cost of say R1 million to create a job that would mean SA has lost 2.7 million jobs! I know it not that simple as one needs other factors such as quality education and business confidence in place.

Also, jobs can cost much more or less than R1 million, but the government has control over many things such as the quality of education and attitude towards business and fighting corruption.

Almost all other emerging markets are improving the ease of doing business. Many African countries are now surpassing South Africa in the ease of doing business. Rwanda; Morocco; Kenya and Botswana are all ranked higher than South Africa in 2018. Zambia and Tunisia are not that far behind while Malawi improved the most of all the countries in the rankings.

The top 25 developing countries in the world average over 30% positive net FDI to GDP (excluding SA and Malaysia who are the only two with negative net FDI in the largest developing markets). In South African terms today that would mean an extra R3 trillion in fixed investment in South Africa today.

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That would probably mean around three million more jobs and the knock-on effect of that perhaps another million or two.

The recent World Bank report also estimates that for every 1% reduction in the unemployment rate the inequality measure the Gini coefficient would drop by 1.2 points. Three million jobs would have halved the unemployment rate from about 27% to about 13%.

The SA Gini would have dropped from 0.69 to 0.52 on these estimates. That would have really taken most of the poverty and inequality problems away. If these three million estimated jobs could have had a knock-on impact of only 700 000 other jobs then SA unemployment would be in single digits.

Cyril Ramaphosa: A good start but the real hard work is on the way

Again it’s not that easy but it is possible and it shows how the declines of governance; returns and downright foolish policies have contributed to poverty in South Africa. The risk/reward ratio has changed completely from very positive during the Mandela and early Mbeki years to less rewarding and far more risky in recent times.

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If South Africa just improved slightly, it would make a difference and certainly the improvement in business confidence, and consumer confidence are a good start.

But the real hard work has not yet begun. Spending tax money more wisely; jailing corrupt leaders; reducing the toxic racial atmosphere; easing regulations and closing state enterprises that require tax money year after year.

Lowering the cost of transport; communications; water and electricity while fixing roads, and infrastructure are minimum requirements. Put more business people on commissions, increase academics to widen the knowledge base and reduce the number of civil servants.

Cutting the civil service wage bill by at least third when expressed as a percentage of GDP. This must happen while we lower the number of children to educator to the world average of 24 from 32 now.

Lower the tax burden and make far more business-friendly policies the centrepiece of all laws. You are not putting people first if you do not attract investments and therefore jobs and food on the plate. After that you can worry about minimum wages or if a business is the right colour.

Mike Schussler is an economist at Economists.co.za.