Acceleration of political and economic integration in Southern Africa makes region more attractive to foreign investors

14 March 2011

Johannesburg, South Africa, 14 March – The acceleration of the political and economic integration of the southern African Development Community (SADC), which includes Angola and Mozambique, makes the region more attractive to foreign investment, particularly from China, said the centre for Chinese studies of South Africa’s Stellenbosch University.

The study entitled, “Evaluation of the Role of Foreign Direct Investment by China in Southern Africa,” noted that the continent and the Southern region had attracted an increase in the amount of investment over the last two decades, but that is not enough in itself, with economic growth depending on policies to “reap the benefits of FDI.”

The study recommended, as a way of improving the investment climate in the SADC by reducing business costs, acceleration of political and economic integration, “improving interlinking and thus expanding the size and attractiveness of the market,” said the study’s authors – Sanne van der Lugt and Victoria Hamblin, with Meryl Burgess and Elizabeth Schickerling.

Economic and financial integration of the SADC “improves, in theory, the attractiveness of the investment climate, but these strategies are not being completely applied due to the limited capacity of the SADC,” they noted.

“The political players in Southern Africa are increasingly focused on increasing the positive impacts of FDI, with SADC member countries approving specific regulations to attract more foreign direct investment (FDI),” they said.

According to the latest figures on international investment, Angola and Mozambique are amongst the main destinations sought by Chinese investors.

Whilst Angola received a total of US$8.31 billion last year, far from the maximum of US$41.19 billion from 2007, in Mozambique the level of investment in 2009 reached a record of US$15.85 billion.

The Democratic Republic of Congo and Zambia were the main destination fro Chinese FDI, which totalled US$506.38 million in the region, below the US$5.2 billion of the previous year, driven by investment in South Africa.

Despite increasingly being a destination for investment, African countries account for just 5.24 percent of total FDI.

According to the centre for Chinese studies, Southern African countries over the last few years have made, “substantial progress in creating a more attractive business climate and in attracting FDI.”

Nonetheless, it said, foreign investors, “see a lot of room for improvement,” specifically the reduction of business costs, as well as the need to improve infrastructure.

The authors of the study note that China, “should not be treated any differently,” more or less favourably, by the recipients of the investment.

“It is not very fruitful to set apart Chinese investment whilst foreign investment from other large investors brings equally positive or negative consequences.”

“Instead of that, a greater level of action by the interested African parties – government and civil society – is required – under the direction, models and objective of the investments, regardless of the country of origin,” they said.

The study notes the similarities between management of investment (FDI) between China, the United Kingdom and South Africa, specifically a centralised structure with a state body to support and regulate FDI, but also in terms of its long term prospects.

An important difference, it noted, is that in China the same body manages FDI and development aid – the Trade Ministry.

The report was based on documentation and interviews with a sample of 12 Chinese and African government officials, as well as organisations from civil society and companies. (macauhub)