1. Portfolio Committee – Investment Workshop
Investment in promoting industrialisation, trade and economic growth and development - focus on foreign direct investment
Trudi Hartzenberg
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 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)