Foreign investment: Curse rather than cure

AIDC Press Release | 06 November 2019

South Africa needs investment that can dramatically reduce both unemployment and inequality, while simultaneously reducing greenhouse gas emissions. This effectively calls for a reindustrialisation strategy such as a green new deal that can put in place a just transition towards a wage-led and low-carbon development path.

To finance this we should be critical of the shibboleth that South Africa is dependent on foreign investment.

Foreign capital will go where it is the most lucrative for them to go without any concern for the needs of the majority of the population. Indeed, we need to confront the fact that foreign capital is a major problem rather than being part of the solution.

In fact, even the IMF has just discovered that around 40% of new ‘FDI’ is actually ‘phantom.’ This investment often comes in the form of speculative, portfolio investment and hot money that enters and leaves the economy without contributing to increased productivity.

Two things have been consistent since 1996 when the Government implemented GEAR, namely an emphasis on attracting foreign investment and job losses. The medicine is killing the patient. A different strategy is possible and necessary.
Fortunately, South Africa has massive amounts of domestic resources at its disposal. Moreover, public
sector investment around a clear industrialisation strategy aimed at meeting the myriad of urgent unmet needs of our people, would serve to crowd in private investors having the merit of meeting the country’s development
needs.

1. The Public Investment Corporation (PIC) has assets of about R2.1-trillion. R1,8 trillion of which belongs to the GEPF and R180bn to the Unemployment Insurance Fund (UIF). Tapping into this pool of public finance can resource a lot of the investment required while placing no risk on public pensions. In fact, if the assets are directed to invest in a state-led re-industrialization strategy, it can
   result in the bolstering of the security of future pensions through the guarantee of future work and
   therefore future contributions into the fund.
2. South Africa also loses tens of billions of Rands each year as a result of profit shifting and wage evasion. A commitment to combating profit shifting and the legislation of a general anti-tax
   avoidance act can go a long way towards repatriating a huge amount of resources for investment.
   Furthermore, there is more than R1,5 trillion in idle capital. A small tax of 10% on idle capital can raise
   R150 billion, as well as act as an incentive to invest.
   

Insourcing all Government procurement in order to stop leakages and massive fraud. Treasury officials estimate that between 30-40% of government’s R 800 bn procurement budget is lost to tender fraud and outsourcing. That is a staggering R300 billion that could be spent strategically and make a massive difference.

• Lowering interest rates, starting with a 3% cut. First imposing much tighter exchange controls so as to prevent capital flight, thus lowering the massive debt repayment burden (now 4% of GDP – thus saving tens of billions of Rand)
• Refusing to repay the R200 bn+ in odious debt taken on by Eskom, from the World Bank in 2010, to finance Medupi.

For more information contact:
Dominic Brown, Economic Justice Program Manager
Alternative Information & Development Centre (AIDC)

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