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Trudi Hartzenberg trudi@tralac Portfolio Committee – Investment Workshop 21-22 July 2015

Investment in promoting industrialisation , trade and economic growth and development - focus on foreign direct investment. Trudi Hartzenberg trudi@tralac.org Portfolio Committee – Investment Workshop 21-22 July 2015. CONTEXT.

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Trudi Hartzenberg trudi@tralac Portfolio Committee – Investment Workshop 21-22 July 2015

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  1. Investment in promoting industrialisation, trade and economic growth and development - focus on foreign direct investment TrudiHartzenberg trudi@tralac.org Portfolio Committee – Investment Workshop 21-22 July 2015

  2. CONTEXT • Global features of industrial organisation (GVCs, fragmentation, servicification of production) – interconnections among investment, trade, industrial development dynamics • Role of emerging markets - investment sources and destinations • New pathways to industrialisation, inclusive growth and development outcomes • Global governance developments: lack of enthusiasm for multilateral governance solutions; (evidence of governance fragmentation) – no multilateral investment agreement • FINANCING FOR DEVELOPMENT (ADDIS CONFERENCE) AND SDG’S (SEPETMBER 2015)

  3. THREE PILLARS of SUSTAINABLE GROWTH AND DEVELOPMENT • Building a productive capital stock through investment • Production structure • Infrastructure • Human capital development • Education and skills development • Expanding domestic knowledge systems and ‘absorptive capacity’ of firms (emphasis on science and technology) • Institution building • Rules of the game (Northian definition) • Organisations and appropriate policies

  4. INVESTMENT – Indispensible for growth and development • Capital formation a prerequisite for growth and development → growing the GFI/GDP ratio (South Africa 2012: 19.2%) • Investment function is complex with many independent variables; also depends on the other two pillars being conducive to investment • NOTE • Quality of growth will depend on quality of investment; e.g. capital can be substituted for labour through mechanisation which is not socially beneficial • Rapid urbanisation creates a demand for mega investment in infrastructure; how will this be financed? • Investment in production structure should not underestimate importance of the services sector, which can be tradable and support competitiveness and trade in goods

  5. FOREIGN DIRECT INVESTMENT • Savings gap because of poverty demands FDI to fill the gap • Since mid-1990s FDI as share of capital formation has been increasing in Africa • IMPORTANT MATTERS: • In Africa mostly attracted into isolated enclaves of primary production with limited linkages to rest of economy • Is it crowding-in or crowding-out domestic investment? • Risk profile of investment (sector specific matters) • Role of incentives (incentives for foreign vs domestic investors)

  6. LOCATION DETERMINANTS OF FDI • Motivation for the FDI (market seeking; resource seeking, efficiency seeking and asset augmentation) • Economic and business environment of host, or potential host, countries, and the FDI- related policies pursued by their governments • Mode of entry or expansion of the FDI (greenfield FDI or mergers and acquisitions) Note: factors influencing risk-return equation (role of policy uncertainty)

  7. A SOUTHERN AFRICAN PERSPECTIVE • During 1999-2003 Angola and SA consistently among top 10 FDI recipients of FDI in SSA • Angola illustrates the paradox of FDI • mineral rent-seeking FDI occurring without other pillars of development in place • typical enclave type investment with few domestic spillovers • South Africa is a prominent recipient but also a major origin of FDI in the region and the rest of Africa • As FDI recipient, M&A an important form • Long term capital inflows vs portfolio investment

  8. MANAGING TRADE-INESTMENT-GROWTH-DEVELOPMENT COMPLEX • Investors, producers, traders– agents of inclusive growth, partners to government to achieve development outcomes • Trade matters: increases demand/market size; opportunities for economies of scale; technology transfer (market access issues) • Investment matters: enhancing capacity to produce tradeables; economic diversification; strengthening linkages and relationships in economy • Industrial development pathways – GVCs (production fragmentation – investment as the flip-side of trade) • Growth – development (quality of growth => development; addressing poverty, job creation)

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