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Growth is the point by Stephen Gelb

​​​The United Nations Conference on Trade and Development (Unctad ) World Investment Report 2011 was launched yesterday.​


The United Nations Conference on Trade and Development (Unctad ) World Investment Report 2011 was launched yesterday. I presented it in Johannesburg on behalf of Unctad. Naturally, I focused on SA’s performance in attracting inward flows of foreign direct investment and in providing outflows of foreign direct investment in 2010, the period covered by the report.

Measured in monetary terms, SA’s performance was not good. Inward flows at $1,5bn last year were 70% below the 2009 figure, and outflows at $450m were 65% down.Measuring performance in foreign direct investment inflows as a percentage of gross domestic product, we ranked 128 in the world, just behind Burkina Faso and Italy.​

​Some have responded to these numbers by suggesting the government’s (and labour’s) position on the Walmart acquisition of Massmart are to blame for this poor performance, with the debate about nationalisation also identified as responsible. These claims are spurious. The figures apply to the calendar year 2010. Walmart’s acquisition of Massmart was announced on September 26, three quarters through the year. Public debate about the effect of the deal only gained momentum this year . Whatever the merits or otherwise of the government and union positions on Walmart, they cannot be responsible for SA’s foreign direct investment performance last year. The same applies to the debate about nationalisation.​


SA’s performance picked up strongly early this year. The source of Unctad’s data for SA is the Reserve Bank, which had reported as long ago as March the 2010 figures showing the big drop from 2009. In its June Bulletin, the Bank reports SA received $0,7bn in foreign direct investment inflows in the first quarter of 2011 and directed $1,6bn in outflows. So we were already well on the way to improving on last year’s performance, and if the Walmart deal goes through (and the payment for Massmart enters SA), 2011 inflows will be at least 100% higher than last year.

Focusing on the dollar value of foreign direct investment flows misses the point, which is the contribution of foreign direct investment to long-run growth. We need more foreign direct investment but, more importantly, we need more useful foreign direct investment which will contribute to growth and employment. If the low 2010 flows stimulate discussion about foreign direct investment and its impact, it will be a small price to pay.​


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