Global trade
Our economy deserves fixed direct investment
February 18, 2005
By Mandla Maleka
There is no doubt that international investors with surplus capital for investment control the global economy. Our economic policies at the end of the day are nothing less than appeasing principles to attract attention from international investors.
But at times one is baffled by the demands of this influence wielding group. This country has done quite a number of things to attract elusive foreign direct investment.
In 10 years we have lowered borrowing costs to record lows, stabilised the fiscal position, brought sanity to domestic inflation and revitalised confidence in the external value of our currency
"Our policies testify to good governance. And yet fixed investment remains elusive" |
. Yet all these goodies do not seem to have comforted the hearts of foreign investors.
Why worry about foreign investors? Because global economics is now a village managed through desk top communication. Besides, we have a savings culture insufficient to meet domestic demand for capital. Hence we need foreign savings.
Although government dissaving has narrowed somewhat over the past decade, there are threats to this position as a result of the unapologetic effects of poverty and its twin evil, unemployment. Government could be forced to borrow to increase welfare transfers and/or grants.
Global investors, while they have been attracted to the country via portfolio inflows into our stock market, could easily withdraw such inflows at short notice, making a mockery of our reliance on them.
What the country needs is fixed direct investment, which is globally accepted as one way to create sustainable employment. This has been elusive, even in a country that has brought inflation to single-digit levels, allowing assets to increase in value.
Investor demands are at times tantamount to continuous innovation, a feat that the world knows to be a tough call. It took society some 2 000 years to come up with a working automobile. It took 1 800 years to develop a telephone and over a century thereafter to perfect cellular phones.
Air bags were only introduced in the 1970s and videos and microwaves a decade or so later. It was in the 20th century that the aeroplane was developed and Bill Gates saved our lives with his software in the latter part of the 20th century.
Given these innovations, it will be tough to add value in a country that can barely sustain over 25 000 higher-grade mathematics learners in grade 12.
Nevertheless, our monetary and fiscal policies testify to good governance. And yet fixed investment remains elusive. I am loathe to hint at an evident investment boycott; nothing could be further from the truth.
Long-term interest rates, measured by fixed government stock, have rallied to record levels - a confidence indicator and tool to predict future short-term rate movements. Companies can now borrow at very low rates, allowing for capacity to increase.
We are in a structurally benign inflation environment with rising foreign reserves, sufficient ingredients to support the currency and thus limit its volatility, and yet foreign investors seem to see problems. The country can easily stand alone, independent of the Mandela factor.
Yes, the scourge of HIV and Aids, and the incidence of crime remain ominous, but efforts to quell these ills are fairly evident.
Next week's budget speech will, as usual, attest to an economy that is one of the best run in the world and deserving of fixed direct investment.
Mandla Maleka is the chief economist at Eskom Treasury. The views expressed are his own
|
|
