Thesis (MBA (Business Management))--University of Stellenbosch, 2007. / ENGLISH SUMMARY: With diminishing sources of capital over the past two decades, developing countries have increasingly regarded the flow of foreign direct investment (FDI) as their main source of capital for development. In response to this, countries have also liberalised their policies, making their investment climate friendlier to FDI. This has been accompanied by increased competition amongst such countries to attract FDI, resulting in higher investment incentive packages offered by host governments to potential investors. This study aims to analyse the significance of host country incentives in attracting FDI, and consider whether or not these generous incentives benefit only the foreign investors, without any positive spillovers and linkages being created within the domestic economy, as this is usually given as the strongest motivation for offering these generous incentives. The research has used case studies of three diverse countries to compare and contrast their approach to incentive policies: • Lesotho, where no incentives are offered specifically to foreign investors • Namibia, with its export processing zones (EPZ) and • South Africa, which offers industry-specific incentives. The analysis is undertaken on aggregate FDI inflows to these three countries for the period 1998 to 2004. These are then compared to other selected countries from Africa. A further analysis of relative performance of FDI to gross fixed capital formation and GDP has also been undertaken for the same period. A separate analysis of the flow of FDI to Namibia four years before and after the introduction of the EPZ regime is also undertaken, and the results are compared with those of Lesotho and South Africa during the same period. It can be concluded that fiscal incentives have not had a significant impact on aggregate FDI inflow into Namibia, but that industry specific incentives such as those used in South Africa have had a much better impact. The results also show that there has been little evidence that FDI has created positive spillovers and linkages in these economies and therefore that the use of generous incentives may have benefited foreign investors more and accrued costs for the host governments. The study has also shown that, despite the absence of essential determinants of FDI in countries such as Angola i.e. adequate infrastructure, economic stability and good governance, FDI in Africa has been mainly resource seeking; concentrated on resource and in particular petroleum rich countries such as Nigeria, Angola and Equatorial Guinea. This form of FDI creates little or no linkages with the rest of the economy and therefore contributes which means that little contribution is being made to the broader development of the economy of the continent.

To date the SADC region has managed to develop a manufacturing base but this base is still small as evidenced by its low contribution to GDP. For example, only three out of the fourteen SADC countries, viz. Mauritius, South Africa and Swaziland, had over 20 percent of their GDP originating from the manufacturing sector throughout the 1990s. Also to note is that while the manufacturing sector is quite diversified, the sector is dominated by industrial processes which are more of resource and labour-intensive in nature than those processes of scale-intensive, differentiated and science based in nature. TIle trade performance of the manufacturing sector supports these observations and as such the region is heavily dependent on imports for scale-intensive, differentiated and science based commodities. However, despite the fact that the region tends to focus more on resource- and labour-intensive manufacturing activities, products from these manufacturing activities are still significant components of manufactured goods imports into the region. Also to note is that since resource- and labour-intensive industries dominate manufacturing activities; these are the areas in which investment opportunities abound. For example, agro-based manufacturing presents most of the investment opportunities, with food processing presenting the majority of the investment opportunities followed by garments and textiles production. Mineral processing also presents significant investment opportunities. The analyses of the nature of the manufacturing sector also show that in a few SADC countries, viz. Mauritius, South Africa and Zimbabwe; scale-intensive, differentiated and science based industries also form a significant component of the industrial base implying more technologically complex manufacturing sectors. Since high technology and technologically complex manufacturing activities are limited, investment opportunities in these manufacturing sub-sectors are also limited to just a few countries However, with the SADC ITA in place, opportunities could arise for these limited technology-related manufacturing facilities to expand or engage in import substitution production so as to meet the demands of the growing regional market. It is also important to note that, while the region may not have as competitive advantage in these industries as in the resource- and labour-intensive industries, there is a need for the region to selectively identify and target such industries for priority development, a lesson SADC could learn from the East Asian NIC's took in their industrialisation strategy. The study also shows that the manufacturing sector has been a priority sector for both domestic and foreign investors. This has implications for industrial development because a strong and dynamic manufacturing sector would be developed, forming a sound basis for industrialisation as well as being able to effectively link and support all the other sectors of the economy. FDI could help the region to fully utilise the labour-intensive industries and use them as a stepping-stone to higher levels of industrial development. This is a lesson to SADC from the experiences of the East Asian NICs where while industrialisation was initiated by labour-intensive manufacturing, the countries were able to move into capital-intensive manufacturing due to FDI as it enabled the establishment of the industrial bases, thus leading to a rise in the share of manufactured exports. FDI could also help to develop the resource-intensive industries further by promoting further processing of raw materials into products of more value, thus propelling industrialisation through a resource-led industrial development programme as the current resource-intensive industries become fully utilised. The raw materials which occur in great abundance in the region's primary sector would have a ready market in the manufacturing sector where they would serve as inputs to the production of high value products. The currently smaller industrial base for scale-intensive products, differentiated and science-based manufactured products would benefit from the improved technological capabilities and managerial skills that result from FDI. Therefore, by impacting positively on manufacturing activities of both low and high MVA, FDI would thus have a facilitating role in establishing a more solid industrial base, broadening the current manufacturing base, and improving installed capacity utilisation. The study also shows that investment in productive capacity in the form of machinery and equipment is of great importance in the sampled SADC countries. Investment towards the acquisition of this capital is very important as this is directly relevant towards improving productive capacity. FDI could thus play a facilitating role by augmenting the current domestic investment in machinery and equipment. While the manufacturing sector within the region is still small and the current utilisation of installed industrial capacity is low, there is potential for further industrial growth. The current process to usher in the SADC Free Trade Area would have a facilitating role through various ways: viz. increasing the market size and enabling easier access through the reduction of tariff and non-tariff barriers, promoting regional competitiveness, improved utilisation of regional corridors, increasing opportunities for utilising identified intra-industry trade potentials, and providing opportunities for increased regional cross-border investment. Apart from the SADC FTA, the USA African Growth and Opportunity Act (AGOA) and the Cotonou Agreement will also motivate the identification and utilisation of existing and new potentials within the manufacturing sector in SADC. In order to improve the current nature of industries in the region, there is also a need to design and implement appropriate industrial policies and strategies. Such policies should consider the region's trade policies and the recently launched Regional Indicative Strategic Development Plan (RISDP) so as to complement them. The industrial policies should also address issues relating to industrial investment, technology and local technological capabilities development, human resources development, the structure and nature of industry, the competitiveness of industries, as well as facilitating the complementarities between the agricultural and manufacturing sectors. To this end therefore, instead of relying solely on individual national industrial policies, SADC is in the process of formulating a regional industrial policy and strategies which seek to promote and support sustainable industrial growth across the region, thus facilitating industrial development.

Foreign Direct Investment (FDI) flows into South Africa have been very low for several decades, and this research examines the reason(s) why this has been the case since 1994. There is a common belief amongst economists that there is a positive relationship between the amount of FDI received and economic growth, thus the desire to attract greater FDI inflows. A literature review was conducted to establish the determinants of FDI globally and then data were collected and assessed to test which causes are most important. The performance of developing nations in attracting FDI was first compared with that of the developed nations. Thereafter, a regional breakdown of FDI flows was presented, with a particular focus on the Southern African region. FDI inflows to South Africa since 1994 were compared against the identified determinants of FDI, as well as with FDI inflows into two other major mining economies, Chile and Botswana. The friendliness of the government towards business was identified as a significant determinant of FDI inflows and the importance of this factor in explaining FDI inflows into environment in South Africa was looked at in more depth. It was found that many investors perceive the South African government as hostile towards business and as corrupt and/or inefficient. The empirical results show that this negative perception helps explain the FDI inflows attracted by South Africa since 1994. Therefore, increased friendliness to business by the government should increase future inward FDI flows into South Africa.

This dissertation examines the role of government policies in attracting the foreign direct investment (FDI) to SADC countries. To achieve this, the study uses econometric, statistical, and thematic methods within a panel data context and explores means through which SADC countries can attract the FDI. The study covered a panel of 15 SADC countries over the period 1980–2018. FDI is associated with several benefits, particularly in the less developed countries for their investment purposes. However, these less developed countries – including SADC member countries – encounter challenges of attracting FDI despite having abundant natural resources and proposing various regulatory reforms to liberalise their economies. The empirical approach suggested several ways through which a country can attract FDI. The study found that FDI in SADC is not entirely driven by the presence of natural resources but by other determining factors such as the infrastructure development and economic growth, which proved to be paramount in attracting FDI. Therefore, the study recommends that SADC should not only adopt structural policy reforms that potentially improve trade openness, but also adopt strategic infrastructure development. / Business Management / M. Com. (Business Management)

MCOM / Department of Economics / The study aimed to empirically examine the impact of foreign direct investment on economic growth in the Southern African Development Community countries for the period 1980-2015. The relation between foreign direct investment and economic growth has been a subject of extensive discussion in the economic literature. The debate revolves around the growth implications of foreign direct investment. The extraordinary increase in global FDI flows in the last three decades triggered an interest to investigate the growth implications of such huge amounts of cross-border capital movements. Owing to this surge in foreign direct investment flows and the effort countries are putting forth to attract it, it would seem straightforward to argue that foreign direct investment would convey net positive effects on economic growth of a host country. From a theoretical standpoint foreign direct investment has been shown to boost economic growth through technology transfer and diffusion. In light of the expected benefits of foreign direct investment, many empirical studies have been conducted on this subject matter. While the explosion of foreign direct investment flows is distinctive, the evidence accumulated on the growth effects remains mixed. Using fixed effect panel data analysis, on the overall, the findings of the study show a negative effect of FDI on economic growth in the SADC countries for the period 1980 to 2015. The findings are not in tandem with theoretical predictions from growth theorists and some empirical studies carried out on the same topic. The findings of the study imply that FDI does not seem to have an independent effect on economic growth for the panel of countries in the SADC region. This maybe because FDI flows to Africa and into the SADC countries, in particular, are channelled mainly to the extractive sector with little to no linkages with the other sectors of the host country economy. The findings of the study also show that the growth-enhancing potential of FDI is higher in middle-income countries than low-income countries in the SADC region.

This dissertation examines the causal relationship between inward foreign direct investment (FDI) and economic growth (GDP) in SADC countries. The study investigates, within a panel data context, whether causation is short-term, long-term or both; and explores whether the causal relationship between the two variables differs according to income level. The study covered a panel of 15 SADC countries over the period 1980-2012. In order to assess whether the causal relationship between FDI inflows and economic growth is dependent on the level of income, the study divided the SADC countries into two groups, namely, the low-income and the middleincome countries. The study used the recently developed panel data analysis methods to examine this causal relationship. It adopted a three stage approach, which consists of panel unit root, panel cointegration and Granger causality to examine the dynamic causal relationship between the two variables. Panel unit root results show that both variables in the two SADC country groups were integrated of order one. Panel cointegration tests showed that the variables for low-income country group were not cointegrated, while the variables for the middle-income countries were cointegrated. Since the low-income country group panels were not cointegrated, Grangercausality tests were conducted within a VAR framework, while causality tests for the middleincome country group were conducted within an ECM framework. Panel Granger causality results for the low-income countries showed no evidence of causality in either direction. However, for the middle-income countries’ panel, there was evidence of a unidirectional causal flow from GDP to FDI in both the long- and short- run. The study concludes that the FDI-led growth hypothesis does not apply to SADC countries. The results imply that the recent high economic growth rates recorded in the SADC region, especially middle-income countries, have been attracting FDI. In other words, it is economic growth that drives FDI inflows into the SADC region, and not vice versa. These findings have profound policy implications for the SADC region at large and individual countries. / Economics / MCOM (Economics)

This dissertation examines the causal relationship between inward foreign direct investment (FDI) and economic growth (GDP) in SADC countries. The study investigates, within a panel data context, whether causation is short-term, long-term or both; and explores whether the causal relationship between the two variables differs according to income level. The study covered a panel of 15 SADC countries over the period 1980-2012. In order to assess whether the causal relationship between FDI inflows and economic growth is dependent on the level of income, the study divided the SADC countries into two groups, namely, the low-income and the middleincome countries. The study used the recently developed panel data analysis methods to examine this causal relationship. It adopted a three stage approach, which consists of panel unit root, panel cointegration and Granger causality to examine the dynamic causal relationship between the two variables. Panel unit root results show that both variables in the two SADC country groups were integrated of order one. Panel cointegration tests showed that the variables for low-income country group were not cointegrated, while the variables for the middle-income countries were cointegrated. Since the low-income country group panels were not cointegrated, Grangercausality tests were conducted within a VAR framework, while causality tests for the middleincome country group were conducted within an ECM framework. Panel Granger causality results for the low-income countries showed no evidence of causality in either direction. However, for the middle-income countries’ panel, there was evidence of a unidirectional causal flow from GDP to FDI in both the long- and short- run. The study concludes that the FDI-led growth hypothesis does not apply to SADC countries. The results imply that the recent high economic growth rates recorded in the SADC region, especially middle-income countries, have been attracting FDI. In other words, it is economic growth that drives FDI inflows into the SADC region, and not vice versa. These findings have profound policy implications for the SADC region at large and individual countries. / Economics / M. Com. (Economics)