DECRETO 135/1995 CÓDIGO DE ACCESIBILIDAD DE CATALUÑA

South Africa offered investors an attractive investment location between 1994 and 2014, yet its ability to attract FDI remained limited, with a number of its key economic sectors experiencing a decline in FDI over a period of several years. In exploring whether or not political risk can still be considered a significant determinant of FDI, the main research question of this study considered to what extent these declines were attributable to increased macropolitical risk. Exploring this further, and in support of the main research question, the sub-questions included whether or not the declines in FDI differed from sector to sector and also considered what other factors might have played a greater determining role in driving FDI flows. Three conclusions were drawn in the above analysis, answering the main research questions and the two sub-questions.

Firstly, the analysis indicated that the declines in FDI were to a lesser extent attributable to increased political risk. Collectively, FDI into South Africa’s key economic sectors declined during seven years of the twenty-one-year period studied. It was concluded that only two of these seven years of FDI decline were to a greater extent attributable to increased political risk. The decline in FDI into the manufacturing sector in 2011 and into the mining sector in 2012 were to a greater extent attributable to increased political risk. The data indicated that risk associated with indicators such as socioeconomic conditions, the risk of internal conflict and labour policy, as well as the deterioration in corruption levels and South Africa’s investment freedom, were cited as reasons by foreign investors and analysts as reasons for reduced FDI. The data also showed that the increase in these risks had a notable, and in some cases calculable, impact on the ROI, and thus profitability, of MNCs. It was thus concluded that these declines were to a greater extent attributable to increased political risk. The remaining five years of FDI decline, however, were less attributable to increased political risk. This led to the conclusion that over this period political risk was a less significant determinant of FDI than it historically was.

Secondly, the analysis further indicated that the declines in FDI notably differed from sector to sector. As highlighted above, the data indicated that, with the exception of 2002, declines in FDI occurred in different years and the value of their declines, relative to the previous year, varied greatly. While the decline in 2002 was the greatest for the financial services sector, at 37 per cent, the manufacturing and mining sectors experienced similar declines of 35 per cent and 23 per cent, respectively. In contrast, during all other years of increased political risk between 2004 and 2014, all other declines in FDI differed markedly. The analysis thus concluded that FDI into varying sectors responded differently to increased political risk.

Thirdly, the analysis concluded that the majority of the declines in FDI experienced by the three sectors were to a greater extent attributable to regional and global factor such as the global financial crises of 2000 to 2001, 2008, the fragility of the global economy in 2014, and also to regional factors, such as investment flows into Mozambique’s mining sector. Furthermore, in a number of years during which South Africa’s political climate posed notably higher political risk, namely between 2004 and 2014, investors continued to invest. Between 1994 and 2014 South Africa offered investors an attractive investment location for a wide variety of reasons. Factors that made South Africa an attractive investment location included its strategic geographical position, its large and growing domestic market, the fact that it was a hub of MNC headquarters, it had well- developed infrastructure and provided MNCs with a business climate that was promotive of investment. The international business theories explored above, such as the Macroeconomic Theory, the Economic Geography Theory, the Theory of Oligopolistic Markets and John Dunning’s Eclectic Paradigm, recognised many of these as determinants of FDI. In light of these, and based on the above analysis, it can further be concluded that other determinants of FDI, such as access to new markets, return on investment, removal of competition, access to raw materials, economies of scale and agglomeration tendency of MNCS, played a greater determining role in driving investment inflow.

In summary, the above analysis has made three key conclusions, answering the main research question as well as the two sub-questions. The first is that majority of the declines in FDI into South Africa’s key economic sectors were to a lesser extent attributable to increased political risk. The second is that declines in FDI differed greatly from sector to sector. Third and lastly, global

and regional factors, as well as the other determinants of FDI in South Africa frequently played a greater role than political risk in driving FDI flows. It can thus be concluded that political risk is considered a less significant determinant of FDI than it historically was.

CHAPTER FIVE: CONCLUSION AND EVALUATION OF RESEARCH STUDY

5.1 Introduction

The benefits of FDI for development, especially for emerging economies that are capital scarce, cannot be refuted. However, as the world has become increasingly globalised and world economies increasingly integrated, the implications of political risk have far greater reach. This has made foreign investments riskier and FDI strategies more complex. Globalisation has resulted in ever- increasing, and increasingly rapid FDI flows, resulting in an international economy with unprecedented levels of integration. This has not only led to a global marketplace, but has made international business and investment more competitive (Alon et al 2006, p.623). While political risk was historically identified as a significant determinant of FDI, Alon et. al (2006: 623) note the following with regards to risk and FDI: “Multinational corporations around the world realize the importance of capturing an early market share, even in locales that may seem risky prospects. Risk-averse companies face the threat of losing lucrative future opportunities to more aggressive competitors”. This, in addition to the multitude of factors driving investment behaviour identified in studies from as early as 1870 to today, has increased the complexity of FDI strategy. Literature indicates a steadily growing number of determinants of FDI such as access to cheap labour, natural resources, access to greater markets, the search for efficiency or economy of scales and the agglomeration tendency of firms that drive MNC investments. This transformation of the global investment landscape has changed how MNCs perceive and respond to political risk.

This transformation combined with various other trends in political risk14_{, international investment}

and other impacts of globalisation, has diminished the determining role of political risk analyses in FDI decision-making. Historically, higher levels of political risk deterred FDI. This appears to no longer be the case. This research study explored this through a case study of FDI inflows into South Africa, long considered the hegemon of Africa. The data considered FDI into three of its key economic sectors, namely the mining, manufacturing and financial services sectors, between

14 _{Trends in political risk identified in Chapter Two include significant decline of risks related to}

expropriation or nationalisation, developed countries increasingly a source of political risk and increased globalisation has led to the increased interconnectedness and competitiveness of MNCs.

1994 and 2014. This data, as well as the political risk assessment of the country during the concurrent period, provided a detailed contextual analysis of increased political risk and declines in FDI. An analysis of the data, together with the use of secondary sources, provided a deeper understanding of the relationship between these two variables.

This chapter concludes this research study by reviewing the progress of the study, summarising the main findings of the study and makes recommendations for future research.