Europe sees great investment opportunities in SA – but is turned off by the ANC and Eskom

Business Insider SA
(Photo by Gallo Images/Sydney Seshibedi),
(Photo by Gallo Images/Sydney Seshibedi),
  • European companies wanting to invest in South Africa regard the country as more business-friendly than the likes of Malaysia, Brazil, and China.
  • But businesses already operating in South Africa give a more sobering account of government inefficiencies, unstable energy supply, rampant corruption, and a volatile political climate.
  • South Africa's July unrest also did more damage to investor confidence than the Covid-19 pandemic, according to a survey conducted by the EU Chamber of Commerce and Industry of Southern Africa.
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European companies want to invest in South Africa, but serious concerns around government efficiency, energy supply, corruption, and the current political climate weaken business confidence.

The European Union (EU) is South Africa's largest source of foreign direct investment. More than 1,000 EU companies are active in South Africa, with participation outpacing business from the United States, United Kingdom, and China. It's estimated that these European companies directly employ around 350,000 South Africans.

This snapshot of Europe's investments in South Africa was recently delivered by the EU Chamber of Commerce and Industry of Southern Africa during the presentation of results from its latest surveys. These surveys looked at EU businesses' perceptions of South Africa's investment climate.

Split into two surveys, the first analysed more than 300 European companies that do not yet operate in South Africa, with the majority considering the country's investment climate as favourable. South Africa is perceived as more business-friendly than nine other comparator countries in Asia and Africa, including Malaysia, Brazil, and China, according to the results of the survey.

South Africa's large market, the abundance of raw materials, good infrastructure, and cheap labour are rated most positive by potential investors. At the other end of the scale of issues making potential investors most hesitant are concerns around corruption, political instability, and unqualified labour.

These concerns are supported by 82 EU companies already operating in South Africa, with their experiences covered in a parallel study.

Current investors flagged government efficiency, energy supply, corruption, the political environment, and economic growth as issues having the biggest negative impact on South African investments.

"EU companies operating in South Africa have a strongly negative perception of the current investment climate," noted the survey's results delivered on Tuesday.

"The ability of government to deliver efficient services, address corruption, and resolve the ongoing electricity shortfall are seen as particularly problematic."

The results come three months after African National Congress (ANC) and South African President Cyril Ramaphosa announced that his investment conferences had garnered pledges to the value of more than R1 trillion.

The survey also takes into account the impact of the Covid-19 pandemic and the July unrest which swept across parts of KwaZulu-Natal and Gauteng, leaving more than 350 people dead in its wake. These riots were far more detrimental to South Africa's prospects than the pandemic, with most EU investors saying that the unrest negatively impacted their decisions for future investments.

Both surveys, conducted between November 2021 and March 2022, came amid the worst of Eskom's load shedding, as planned maintenance coupled with unexpected breakdowns severely strained South Africa's electricity generation.

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