African growth 'calls for industrialisation'

26 September 2012

Although Africa is the second-fastest growing continent, its challenge is to move from a path built on consumption and commodity exports to a more sustainable developmental path based on industrialisation, says Trade and Industry Minister Rob Davies.

Davies was speaking during the United Nations Conference on Trade and Development's (Unctad's) Investment Policy Framework for Sustainable Development in Geneva, Switzerland on Monday.

Although Unctad's recent World Investment Report indicates that global foreign direct investment flows exceeded the pre-crisis average in 2011, reaching US$1.5-trillion, flows remained some 23% below their 2007 peak. While foreign direct investment (FDI) inflows increased across all major economic groupings in 2011, developing economies now account for 45% of global FDI.

FDI inflows into sub-Saharan Africa recover

"Africa saw a third year of declining FDI inflows, but the 2011 decline in flows to the continent was due largely to divestments from North Africa," Davies said. "Inflows to sub-Saharan Africa recovered to $37-billion, close to their historic peak."

South Africa was now seeing growing investment from India and China, which was also occurring across the African continent.

South Africa was also investing on the continent, with a recent publication by the South Africa Institute of Race Relations observing that total South African direct investment on the continent had increased from R3.8-billion in 1994 to R115.7-billion in 2009, Davies noted.

Making FDI work for development

While there was debate on the models of on investment policy, the Investment for Sustainable Development Model recognised that while FDI could make a positive contribution to sustainable development, the benefits to host countries were not automatic.

"It posits that regulations are needed to balance the economic requirements of investors with the need to ensure that investments make a positive contribution to sustainable development in the host state," Davies said.

The associated benefits of investment as they relate to technology transfer, skills development and research, among others, needed to be purposefully built into the investment regime, and not taken for granted.

"New thinking and practice in international economic policy-making, notably with respect to the role of state in economic development, finance and industry, also need to find expression in international investment policy-making."

Davies added that South Africa's three-year bilateral investment treaties (BITs) review, concluded in 2010, confirmed this assessment. The recommendations made from the review were largely endorsed by the Cabinet in April 2010.

"Cabinet understood that the relationship between BITs and FDI was ambiguous at best, and that BITs pose risks and limitations on the ability of the government to pursue its Constitution-based transformation agenda.

The Cabinet had concluded that South Africa should refrain from entering into BITs in future, except in cases of compelling economic and political circumstances.

It had instructed that all "first generation BITs, which South Africa signed shortly after the democratic transition in 1994, many of which have now reached their termination date, should be reviewed with a view to termination, and possible renegotiation on the basis of a new Model BIT to be developed."

Source: SANews.gov.za