Building capacity to help Africa trade better

Global perceptions key to competitiveness and foreign investment


Global perceptions key to competitiveness and foreign investment

Global perceptions key to competitiveness and foreign investment
Photo credit: Media Club South Africa.com

Creating a favourable global perception of South Africa can go a long way to attracting foreign direct investment. As a result, government stakeholders would like to broaden the country's image beyond mining and tourism to bring investors from a wider range of sectors.

Managing perceptions of South Africa is essential to increasing the country’s global economic competitiveness and attracting foreign investment. This was the key message coming out of a seminar hosted by Brand South Africa at Wits Business School in Johannesburg on Wednesday 2 April, titled International Perceptions of South Africa in a Complex Emerging Market.

Petrus de Kock, Brand South Africa’s research manager, said the country’s competitiveness in an increasingly globalised world depended on understanding how it was perceived by its trading partners, both traditional markets and the emerging markets set to drive global growth in coming decades.

De Kock presented findings from a 2013 survey to determine the world’s perception of South Africa. This questioned 860 investors in 18 countries, including the US, UK, Nigeria, Kenya and Japan, as well as South Africa’s Brics partners Brazil, Russia, India and China. It also aimed to find out what drove investment decisions, identify barriers to investment in South Africa, and determine which industry sectors investors associated with the country.

Familiarity, said De Kock, played a major role in shaping perception among both established and potential investors. At least 61% of respondents were familiar with South Africa to varying degrees, 32% were investing or doing business in the country and 87% had heard, read or seen something recently about the country. “It is a relatively high level of awareness. People among that group know about us, which is important.”

Brand South Africa interviewed 860 businesspeople from 18 countries to determine South Africa’s global perception. The weight factors applied to the final data are based on each country’s GDP figures.

South Africa’s infrastructure a major investment attraction

A main concern foreign investors have with South Africa is its geographical distance from major markets. But De Kock said the country’s developed infrastructure could overcome the issue of distance. The World Economic Forum, he said, ranked South Africa 11th in the world for the quality of its air transport infrastructure, and the country can confidently claim to be a hub for trans-shipment, logistics and services.

The survey backed this up: despite their concerns, investors were attracted to South Africa for its infrastructure.

But infrastructure, De Kock said, remained a concern for local businesspeople. “Last year, in preparation for the South African Competitiveness Forum, we had lots of input from the manufacturing sector and many other sectors, and often the issue of infrastructure would come up. However, what I do think we should have is a balanced view of what already exists within the country.”

Examples of thriving and sophisticated infrastructure, De Kock said, included Richard’s Bay, the biggest export hub in the southern hemisphere, and the Dube trade port being built between Durban and Richard’s Bay. “We are constantly adding to the infrastructure capabilities to unlock some of those bottlenecks that we have, especially for some of our mineral products.”

To further gauge global inventors’ general knowledge of the country, Brand South Africa questioned respondents about the Square Kilometre Array. Eighty-percent were aware of the massive telescope project, with 44% well-informed about it. “It’s such a big story for us as a country and it’s a very important selling point in terms of our national capability.”

The survey also asked about the Trilateral Free Trade Area (TFTA), a pending agreement between the Southern African Development Community, East African Community and the Common Market for Eastern and Southern Africa to open up borders. Around 33% said they were aware of the TFTA; 90% of those agreed that such a pact would create opportunities for increased interaction, trade and investment.

Dr Shima Nokaneng, the group executive of Business Intelligence at the Gauteng Growth and Development Agency, said the TFTA was a huge drawcard for foreign investors looking to do business in Africa. When the TFTA was fully implemented, he said, investors would be able to freely trade between 26 countries in eastern and southern Africa.

Despite South Africa’s attractions for investors, the survey found there were concerns that might prevent investors from doing business here. Their main worry was crime, of which 17% were aware. Political corruption (16%), safety and security (7%), high costs and low profit margins (6%), and geographical distance (5%) were the other factors that caused concern.

But, De Kock said, there was a difference between the concerns raised by those not invested in South Africa and those with a presence here, as the latter had exposure to the market. Intervention was required to dispel those concerns, De Kock said. “It’s the kind of intervention needed to bring people from a state of semi-knowledge about the country through a structured process into learning about how we work and what the country offers.”

Sectors associated to South Africa

Most investors still associate South Africa with mining and quarrying, said De Kock, even though this sector only constitutes 7% of the country’s GDP. “It’s only for historic reasons we have this association with mining and quarrying.”

Agriculture was the second highest sector associated with South Africa, followed by tourism, which De Kock said dropped in perception from 49% in 2012 to 44% in 2013.

Awareness of manufacturing increased from 29% in 2012 to 36% in 2013, but the wholesale and retail trade dropped from 36% to 28% in the same period. “Last year, we saw quite a dramatic spike in the association to retail because in the year before that [2012] there was a lot of news about the Walmart deal in the global press. So this year we're just seeing a tapering off of that awareness,” De Kock said.

South Africa has seen significant changes in the sectors associated with the country. In recent years, manufacturing has become increasingly associated with South Africa.

Perception key in global competitiveness

An important component of a country’s global competitiveness is its reputation, which is largely tied to perception. For De Kock, there is no single answer to what defines the reputation of a country. “The answer will differ from market to market, and even sector to sector depending on who you are dealing with and what they are exposed to in terms of knowledge about the country.”

Nokaneng called for action to improve the country’s competitiveness. He that for South Africa to grab the new growth opportunities elsewhere in Africa, the country would need to be competitive in a number of sectors. To do that, it would have to improve some of the competitive pillars the World Economic Forum identifies in its global competitiveness index. These include quality of institutions, infrastructure, health and education, labour market efficiency, macro-economic environment and financial market development.

In the WEF’s 2013-2014 Global Competitiveness Report, South Africa was ranked 53rd out of 148 countries based on the competitiveness index. It was the leader in five criteria including strength of auditing and reporting standards, efficacy of corporate boards, protection of minority shareholders’ interests, regulation of securities exchanges, and the legal rights index.

South Africa had improved in four of the 12 competitiveness pillars – institutions (41), goods and market efficiency (28), and business sophistication (35).

The country also made progress in the innovation pillar, improving by three positions to 39 this year. Despite this, Nokaneng said, the country was not as ready as it should be when it comes to technological innovation. “Other regions have surpassed us. Countries, especially in Africa, like Rwanda and Kenya, are moving faster in terms of technological development.”

Nokaneng said technological readiness attracted investors as it allowed them to expand their market. South Africa needed to commercialise and patent more of its business-enhancing innovations.

The structure of the country’s economic profile would be changed by innovation, Nokaneng said. In WEF’s report, South Africa was considered an efficiency-driven economy, focused on resources. But by allocating and using its resources productively, he said, it could head towards the next level – an innovation-driven economy.

Mogotsi of the City of Johannesburg, referring to the South African Competitiveness Forum Research and Outcome Report, said that there was something missing in the country’s innovation. In the report, South Africa ranked cost and availability of labour and materials as its major competitiveness driver. But Mogotsi pointed out that, in the same report, the rest of the world ranked talent-driven innovation as the leading driver of competitiveness. “Is this because there is something really special about manufacturing in South Africa that is different to what’s happening in the global environment? I think we’re missing something about innovation.”

He added that a lot of countries view competition as both between countries and something that took place within its borders. “Many cities are positioning themselves as the best [in certain fields]. For instance, Barcelona is a creative city and it attracts the best creative talent from all over the world. It said, ‘If you want to run a creative business, the best place you could operate from is Barcelona.’“

China’s story in the last 20 years has been about manufacturing, said Mogotsi. What, he asked, was South Africa’s story? “Good capital is already aggregated here. Financial services talent is here. A great deal of mining talent and mining technology capabilities are here. So what else do we need in the mix to attract [foreign businesspeople] in order to make this a competitive place for business?”

Read the full article on the Media Club South Africa website.


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