Industrialisation key to spur African growth

Johannesburg - While Africa is sitting on the cusp of increasing investment, the continent should transform the growth spurt into a more sustainable developmental path that is driven by industrialisation, while also attracting foreign direct investment, says Trade and Industry (dti) Minister Rob Davies.

Emerging economies, including those in Africa, are projected to grow by 5.5% this year, according to the IMF. The strength of the world economy has been shifting from the north and west to the south and east. Africa is the second fastest growing continent after Asia.

Davies attributed the growth on the continent to the mineral products boom, consumption, infrastructure development and that the continent had been spared a sovereign debt crisis.

"The challenge across the continent is that Africa needs to transform this growth spurt into a more sustainable developmental path driven by industrialisation," Davies said on Thursday.

Speaking at the launch of the South African United Nations Conference on Trade and Development (UNCTAD) Investment Policy Framework for Sustainable Development (IPFSD) at Wits University, Davies said that a recent UNCTAD report indicated that global Foreign Direct Investment (FDI) showed global FDI flows exceeded the pre-crisis level, averaging $1.5 trillion in 2011 -- despite the turmoil in the global economy.

However, this was still below the peak before the economic crisis.

The UNCTAD's IPFSD is a guideline for national and international investment policy-making to support more sustainable, development friendly policy-making. It was conceived to assist policy-makers to design policies that effectively mobilise investment and ensure their positive contribution to sustainable development.

"Although FDI increased across all major economic groupings in 2011, it's striking that developing economies now account for 45% of global FDI," noted Davies.

For Africa though, this was a third year of decline in FDI largely due to divestments in North Africa, and most of the investment was in sub-Saharan Africa.

South Africa's inclusion in UNCTAD's list of top prospective host economies for FDI over the next two years was a positive reflection of the country as well as the continent's growth and development potential.

South Africa had seen growing investment from India and China, and the country was also seeking out new investment opportunities.

"We are trying not to make [the attraction of investment into the country] a step-child. There is an incredible amount of negotiation going into it," said Davies.

"We are sitting on a cusp where there's growing investment in Africa and South Africa."

South African companies were also investing into the continent, with direct investment increasing from R3.8 billion in 1994 to R115.7 billion in 2009.

Davies added that FDI benefits were not automatic but they should include regulations that are built into the investment regime.

"While FDI can make a positive contribution to sustainable development, the benefits to host countries are not automatic. It posits that regulations are needed to balance the economic requirements of investors, with the need to ensure that investments make a positive contribution to sustainable development in the host state.

"The associated benefits of investment as they relate to technology transfer, skills development and research, among others, need to be purposefully built into the investment regime, and not taken for granted," noted the Minister.

He further warned that companies that did not apply a code of conduct in their operations risked sullying the reputation not only of the company itself but the country's reputation as well.

Professor Stephen Gelb of the Edge Institute and University of Johannesburg said although South Africa was not a great performer country when it came to FDI, it has had a steady increase.

Gelb said the debate on FDI focused too narrowly on the amount of money coming into a country.

"It doesn't really address issues such as the impact of FDI on long term growth," he said.