Fdi in South Africa

Before the Barclays acquisition in 2005, why had South Africa received so little foreign direct investment (FDI)?

In the 1800’s, most of the foreign investment in South Africa’s economy financed extraction of gold and diamonds. Because these industries were so capital intensive, South Africa began the Johannesburg Stock Exchange (JSE) and by 2006 had become one of the largest and most advanced in the developing world. The JSE had over R3.3 trillion in market capitalization at this time. From the beginnings of FDI in South Africa, most foreign firms came there to provide products to the domestic market, not to use South Africa’s reserve base for exports. One such foreign company, Unilever, had over 100 years of history in South Africa, selling soap to South African consumers. Additionally, British banks had been operating in the nation since the 19th century. South Africa also had a well-developed automobile industry with a history that began in the days of import substitution. Manufacturers such as BMW, Chrysler, and Volkswagen created places to manufacture and export automobiles.

Apartheid, however, caused a great divestment in South Africa from a foreign standpoint. Because the country was in turmoil, as a still developing nation, many did not see a bright future for the economy of South Africa. These doubts caused 20% of UK firms and the majority of American firms to divest from the South African Economy and to use their assets elsewhere. The apartheid government also imposed tariffs in excess of 100% in order to promote and protect South African automobile companies. These policies were not phased out until 1995, when the government also began to offer incentives for foreign investment and exports. The motor vehicle in South Africa became one of the 20 largest worldwide and was responsible for about .7% of global production. The reform was a success, although criticized by many as a form of government subsidy to the industry, which ultimately...