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Deceptively Simple? How SA can boost investor sentiment

Emile Ormond
By Emile Ormond
11 Jul 2018
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Dutch football legend Johan Cruyff famously said that “football is a simple game. It is just very hard to play it simple”. The same rings true for President Cyril Ramaphosa’s plan to bolster investment in South Africa. The president’s seemingly simple goal is made much harder by the country’s business environment, which has been deteriorating in recent years. Ramaphosa can, however, implement a handful of measures to boost the country’s standing among investors.

Leading economic indices empirically demonstrate how the local economy is today less competitive – relative to others – than it was only a few years ago. Many emerging market peers (including some African states) are now ranked higher than South Africa, whereas in the early and mid-2000s the country was a leading performer on the emerging market stage. The hopeful, albeit waning, aura around Ramaphosa is not enough to sustainably bolster the country’s image or to loosen domestic and foreign investors’ purse strings. 


Global indices, which measure different facets of countries’ business environments, show South Africa’s decline from 2014 to 2018:


  • The World Bank’s Doing Business index: South Africa plunged from 41 to 82. Botswana, Kenya, Mauritius and Rwanda are better positioned on the 190-country index, which sees a large set of subject matter experts rank economies according to the conduciveness of the regularly environment to starting and operating a business. 


  • The World Economic Forum’s (WEF) Global Competitiveness Index: South Africa slipped from 53 to 61, out of 137 economies. Mauritius, Rwanda and an array of other emerging markets are better placed. The WEF measures competitiveness by a quantitative and qualitative investigation of institutions, policies, and factors that determine the level of productivity of an economy. 


  • Index of Economic Freedom: A smaller drop from 75 to 77 in this index, run by the influential US-based think tank, The Heritage Foundation, and The Wall Street Journal. Botswana, Mauritius and Rwanda ranked much better. The index measures four economic aspects over which governments exercise control: rule of law, bureaucratic size, regulatory efficiency, and market openness. 


  • World Competitiveness Rankings: South Africa dropped from 52 to 53 in the Swiss-based IMD’s 63 country index. No other African country is included, but emerging economies including India, Mexico, the Philippines, Thailand and Turkey all perform better. The IMD measures competitiveness by comparing countries’ infrastructure, institutions and policies that encourage value creation by companies.

  • A.T Kearney FDI Confidence Index: South Africa dropped out of the index but was 13 out of 25 in 2014. Brazil, India and Mexico consistently make the list. The index is drawn from an annual survey of global executives who rate which markets are likely to attract foreign direct investment (FDI) over the next three years. It is a lead indicator and has over the past two decades closely tracked the top receivers of FDI in later ears. 



Observers who may dismiss these findings as “mere opinion” or an “academic exercise” fail to appreciate that perception often is reality. These snapshots provide a global benchmark that help shape a country’s international narrative; investors’ views – just like those of everyone else – are shaped by imperfect and incomplete information. 



South Africa’s declining rankings coupled with international publications’ unfavourable media coverage (some more balanced than others) portray a country in decline. There are strong suggestions that this narrative has real-world consequences. As economist Mike Schussler pointed out, negative net FDI accompanied South Africa’s drop in the rankings. In other words, since 2014 more South African firms invested offshore than foreign firms invested locally.



Trite as it may sound, South Africa jockeys for investment in a competitive international market. Foreign and domestic companies often make investment decisions based on the relative attractiveness of one destination versus another. It is incumbent on each country to present a compelling case for investment. Firms, especially those based offshore, tend to have little sympathy for socio-economic challenges and historic injustices, remaining focused on generating maximum profit at minimum risk. 



As cold and calculating as this stance may be, it provides countries – at least those that care to listen – with a relatively simple road map to attract investment. For the last several years, South Africa has not walked on this path, and local and foreign firms have reacted in kind.



Where then does this leave South Africa? Disheartening as these findings are, it is encouraging that Ramaphosa – unlike his predecessor – acknowledges the decline and has taken initial steps to reverse it. This includes courting wealthy nations, where the bulk of FDI originates, and reforming state-owned enterprises and arms of government e.g. South African Revenue Service.



As mentioned previously, however, it will require a concerted multi-stakeholder effort over an extended period to address the deep-seated constraints on the country’s investment environment. There is no silver bullet to restore investor trust. Building a positive reputation takes time, so does rebuilding it. In the meantime, the presidency should redouble its focus on low-hanging fruit to improve South Africa’s battered image. 



Ramaphosa should focus on issues that are nominally under his direct control. He would do well to heed a World Bank study that found a country’s investment climate (e.g. investor-friendly policy, regulation and bureaucratic efficiency) appeared to be a leading driver of FDI, preceded only by market size and potential growth. This hints at why states such as Mauritius and Rwanda, with small economies, could bolster FDI inflows by providing an attractive environment. South Africa’s one-stop shops, which are being rolled-out to facilitate investment, is a positive step in this direction. The Presidency should go further and review all macro-level policy and regulations to ensure it encourages – or at least does not discourage – investment.

There can be no sacred cows in such a process.

 Pretoria needs to employ a marketing strategy that highlights the country’s unique value proposition and clearly differentiates it from other emerging markets.

In the past, for instance, South Africa was positioned as the gateway to the rest of Africa, a hub from which firms could enter the world’s second fastest growing region. 

Importantly, government should be seen to be improving the business environment. While the presidency may be taking measures to shift investor perceptions, too little information filters through to the public realm too infrequently. Investors’ perceptions will improve faster if government openly and unequivocally espouses pro-business plans and actions on all public platforms – not just the usual investment junkets and foreign trips. Communication should be managed centrally from the Union Buildings to ensure consistent and credible messaging, properly contextualising South Africa’s contentious policy debates.

Special attention should be given to issues that investors have flagged as concerns, including land reform, the mining charter, national health insurance and free higher education.



There may be not be any quick fixes to South Africa’s investment challenge but neither are the solutions a complete mystery. It will require political will to present companies with a predictable, competitive environment and a compelling business case for why investing now will maximise profits later.

With simple measures in place, the process of regaining investor confidence can and will occur – similarly to Ernest Hemingway’s description of going bankrupt – gradually, then suddenly. As long as Pretoria guards against scoring any more own goals. DM

Emile Ormond is a socio-political analyst. He has worked in the international relations environment for more than 12 years. He writes here in his personal capacity and all views expressed are his own.

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