21 November 2022 - NW4114
Pambo, Mr V to ask the Minister of Trade, Industry and Competition
What are the full details of economic data and/or evidence that he can provide to prove that foreign direct investment in the Republic has had a direct proportional relationship with (a) economic growth and (b) job creation (i) in the 2021 22 financial year and (ii) since 1 April 2022?
Domestic economic growth is the aggregation of multiple, complex streams of for example: production, consumption, expenditure, imports and exports. These are in turn affected by a wide range of domestic and global factors. It is not advisable to reduce these complex interactions to a simple direct and/or proportional relationship. Subject to this caution, the following information has been provided to me by the dtic.
In the Financial year 2021-22, Foreign direct investment (FDI), measured as investment liability inflows by the South African Reserve Bank (SARB), increased from R17.3 billion at the beginning of the 2021/22 financial year to R39.9bn at the end of the financial year, growing by 130.8% during the 2021/22 financial year. In the same period, GDP grew by 1.3%, from R4.5 trillion (tr) to R4.6trn during the same period. Some studies indicate that in South Africa, FDI and economic growth are positively related (Masipa, 2014; Awolusi and Adeyeye, 2016; Makhoba and Zungu, 2021).
In Quarter 1 2022/23 (April to June 2022), FDI declined (-34.2%) quarter-on-quarter while economic growth contracted (-0.7%) quarter-on-quarter.
Regarding Job creation, in the Financial year 2021/22: Foreign direct investment (FDI), measured as investment liability inflows, by the South African Reserve Bank (SARB), increased from R17.3 billion at the beginning of the 2021/22 financial year to R39.9bn at the end of the financial year, growing by 130.8% during the 2021/22 financial year. During the same period, Statistics South Africa (StatsSA) reported that employment contracted by 0.2%, with employment declining from 14.94 million to 14.91 million. Some empirical studies have found a positive relationship between FDI and job creation in South Africa (see Masipa, 2014).
Quarter 1 of this Financial Year 2022/23, Employment increased by 4% quarter-on-quarter while FDI declined (-34.2%) quarter-on-quarter.
Lags in an increase (or decrease) in investment and a subsequent increase (or decrease) in employment may also not follow in the same year, but may lag the change.
Masipa, T. 2014. The Impact of Foreign Direct Investment on Economic Growth and Employment in South Africa: A Time Series Analysis. Mediterranean Journal of Social Sciences, 5(25), 18-27. ↑
Awolusi, OD. and Adeyeye, OP. (2016). Impact of foreign direct investment on economic growth in Africa. Problems and Perspectives in Management, 14(2-2), 289-297. doi:10.21511/ppm.14(2-2).2016.04. ↑
Makhoba, BP. and Zungu, LT. 2021. Foreign Direct Investment and Economic Growth in South Africa: Is there a Mutually Beneficial Relationship? African Journal of Business and Economic Research, 16(4). ↑