Foreign direct investment (FDI) into South Africa more than trebled last year. But the $4.5 billion (R35.1bn) in FDI inflows could be more than halved if a union and three government departments succeed in their legal challenge to the purchase, by global retailer Walmart, of 51 percent of local company Massmart.

The Competition Appeal Court is expected to announce its decision on the $2.4bn transaction later this month.

In October last year, the SA Commercial, Catering and Allied Workers Union (Saccawu) and the Departments of Agriculture, Trade and Industry, and Economic Development appealed an earlier decision by the Competition Tribunal to conditionally accept the deal.

The parties bringing the action fear the merger will harm workers and local suppliers. And they asked for the matter to be sent back to the tribunal in the hope of seeing stronger conditions imposed. If they succeed, Walmart could walk away from the deal.

Economists argue that FDI will create jobs while the increased competition among retailers will benefit consumers.

The UN Conference on Trade and Development (Unctad) released a report on FDI last week, which showed global flows grew 17 percent to $1.5 trillion. And it forecast only a moderate rise this year to around $1.6 trillion. It warned that the downward quarterly trend in FDI projects, over the final quarter of last year, “indicates that the risks and uncertainties for further FDI growth remain in place”.

Last year developed economies received $753.2bn – up 18.5 percent on the previous year. This came after three years of consecutive declines. Unctad said this renewed investment was driven by “corporate restructuring, stabilisation and rationalisation of operations”.

Developing economies absorbed $663.7bn last year, 13.7 percent more than in 2010. Of this, Africa attracted only $54.4bn, down marginally on the year before. The top performer on the continent was Nigeria, which drew $6.8bn. Egypt, which fell victim to civil war, saw a 92 percent contraction in FDI to $500 million.

Leading the growth in FDI to developing and transition economies was Latin America and the Caribbean, where inflows rose almost 35 percent to $216.4bn. Southeast Asia experienced growth of 11.4 percent to $343.7bn.

Mike Schussler, the chief economist of Economists.co.za, said South Africa struggled to compete with developing countries. “To get… investment we need a wholesome environment for companies to operate in.”

Last year the Treasury released a discussion document on FDI. It referred to a “policy gap”, which prompted different responses by departments “on the position of government on investments that affect national interests”. A co-ordinated framework would provide more certainty for investors.

Among the objectives cited in the document was the “maintenance of an open environment for FDI, while addressing the specific public interest considerations emanating from cross-border direct investments”.

The proposed framework “is intended to provide a transparent mechanism for assessing the balance of public interests in the case of these complex investments and will not, in general, unduly restrict foreign ownership of (local) firms”.

Source: http://www.iol.co.za/business/business-news/legal-challenge-threatens-fdi-1.1224571