Government & Politics

Impact of FDI on Unemployment in Post-Apartheid South Africa by Siyaduma Biniza.pdf

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This study seeks to understand the impact FDI has had, or potentially could have, towards creating employment and indirectly reducing inequality in South Africa. But due to the link between inequality-reduction and employment-creation this study focuses on the impact of FDI on employment. Also the study would like to offer an understanding of how South Africa can implement policies to attract FDI that is conducive to these economic imperatives.
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    2013 What is the Impact of Foreign DirectInvestment on Unemployment inPost-Apartheid South Africa? Bridging the Chasm between Ideology, Scholarship andPolicy-Makingby Siyaduma Biniza  | Table of Contents1 Table of Contents Table of Contents.............................................................................................................................. 1Introduction ...................................................................................................................................... 2Background ................................................................................................................................... 2Scope of the research .................................................................................................................... 4Understanding FDI ............................................................................................................................ 6What is meant by FDI? .................................................................................................................. 6What are the motives behind FDI? ................................................................................................ 7What is the theoretical impact of FDI? .......................................................................................... 8What determines the impact of FDI? ........................................................................................... 10Things to remember about the impact of FDI .............................................................................. 12Motives, Mode of FDI and Policies ................................................................................................... 13What are the motives behind inward FDI in post-Apartheid South Africa? ................................... 13What is the mode of entry for FDI in post-Apartheid South Africa? ..............................................15What kind of policy environment prevails in post-Apartheid South Africa? ..................................15What does the evidence show? ........................................................................................................ 17What are the important trends of FDI in post-Apartheid South Africa? ....................................... 181994-1999 ................................................................................................................................... 201999-2004 ................................................................................................................................... 22Summary of 1994-2004 ............................................................................................................... 232004-2009 ................................................................................................................................... 242009-Present .............................................................................................................................. 25Summary of 2004-Present .......................................................................................................... 29Conclusion and Policy Recommendations ....................................................................................... 30Bibliography ................................................................................................................................... 35 List of Figures Figure 1: Net FDI Inflows for SACU Countries (1970-2012) .................................................... 4   Figure 2: Sectoral Composition of FDI Inflows Since 2008 ................................................... 13   Figure 3: FDI Inflows Trend in South Africa (1994-2012) ..................................................... 18   Figure 4: FDI and Unemployment Trends in South Africa (1994-Present) ........................... 19   Figure 5: Mode of Investment by Percentage (Rounded to One Decimal) .......................... 20   Figure 6: Top FDI Deals ....................................................................................................... 21   Figure 7: Market Orientation by Sector, South Africa (% of Affiliates’ Sales) ...................... 23   Figure 8: Employment and FDI Trends, by Sector (2004-2009) .......................................... 25   Figure 9: Top Greenfield Projects (2008-2010) ................................................................... 26   Figure 10: Top Foreign Affiliates in South Africa, by Revenue (2012) ................................. 27    | Introduction2 Introduction Background The South African economy is challenged by high unemployment and inequality. Dealingwith these two challenges is an explicit focus of most economic planning by the post-Apartheid government; from the Growth, Employment and Redistribution (GEAR)macroeconomic package to the most recent National Development Plan (NDP). Moreover, the government’s perspective is that full employment cannot be attained unless SouthAfrica can deal with the current situation of declining manufacturing jobs and increasing jobs with low productivity and slow wage-growth in services such as retail, personalservices, security, domestic services and office-cleaning (National Planning Commission,2011). In sum, South Africa faces some persistent and structural economic changes whichhave locked the country in a vicious cycle of low employment growth and worseninginequality.Hence there have been various attempts to promote pro-poor and employment-creatingeconomic growth because sustainable economic growth and development are challengedby inequality and high unemployment in the country (Patel, 2011). Pro-poor economicgrowth here simply means economic growth that can benefit the poor through reductionsin poverty and inequality. This can be achieved by reducing unemployment and increasingwages (Mohamed, 2012). But this requires heavy investment. Therefore, variousgovernment ministries have embarked on policies to stimulate investment and createlabour-absorbing economic growth.  | Introduction3These policies place a strong emphasis on “foreign investment [which] will have to play rolea significant in the context of curbed savings [in order to create] rising output, incomes andemplo yment growth” (National Planning Commission, 2011, p. 106). Inward foreign directinvestment (FDI) is pursued relentlessly as a way to compensate for low domesticinvestment and as a stimulant for economic growth and development. In other words,given the inadequate levels of domestic investment and savings in South Africa, FDI is seenas an opportunity to overcome the low domestic investment in order to create employmentand reduce inequality (see Moolman, Roos, Le Roux & Du Toit, 2006; Krugell & Matthee,2008; Department of Trade and Industry, 2012).Therefore FDI is an integral part of South Africa ’s growth strategy and it is relentlesslypursued because FDI is believed to have a positive contribution towards economic growthand development. The pursuit of FDI is underpinned by the ideological view that FDIcreates downward linkages which encourage growth and development through thetrickling down of skills, technology and employment opportunities (Moolman, et al., 2006).However, evidence as to whether FDI does in fact lead to economic growth anddevelopment is inconclusive. The scholarly body of work has interrogated this view throughempirical analyses and found inconclusive results which both support and oppose thisideological view.The critical scholarly work sets out various qualifications as the necessary conditions insupport of the positive view on FDI’s impact on growth and development (Sridharan,Vijayakumar & Rao, 2009; Vadlamannati & Tamazian, 2009). Nevertheless, the scholarlyand ideological discourse has one common ground - that under certain circumstance FDI can lead to economic growth and development. But there is little agreement as to what
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