Foreign direct investment in SA lower in 2010

Tuesday, March 22, 2011

Pretoria - Foreign direct investment into South Africa in 2010 amounted to R11.4 billion compared to the R45.4 billion in 2009, the Reserve Bank said on Tuesday.

In its March Quarterly Bulletin, the central bank said the significantly smaller inflow of direct investment capital continued to reflect some uncertainty regarding the global economic recovery and the long term outlook for the domestic economy.

In the fourth quarter, direct investment amounted to R4.3 billion after it was R1.1 billion in the third quarter. The R4.3 billion mainly took the form of long-term loans that were extended by non-resident parent companies to enterprises in South Africa for the financing of capital formation in the mining sector.

There was an outflow of R10.4 billion in foreign portfolio investment into the South African economy -- the first reduction in portfolio liabilities recorded since 2008.

"The change in market sentiment and the subsequent reduction in speculative capital flows were evident in most developing economies, as renewed financial turbulence in the peripheral euro area economies - along with concerns about narrowing output gaps in some emerging market economies - caused global investors to redirect investment funds to the US economy, where growth prospects seemed to have improved," said the bulletin.

"In South Africa, the risk aversion of foreign investors was evident when non-resident investors reduced their holdings of domestic debt securities. This reduction was, however, partly countered by the acquisition of equity securities by some foreign investors," it noted.

For 2010 as a whole, however, inward portfolio investment remained at almost the same level as in 2009.
Other investment into South Africa recorded an inflow of R13.3 billion in the fourth quarter of 2010.

The elevated level of capital flows in this category mainly reflected an increase in short-term loans granted to the domestic private banking sector. Non-resident investors reduced their deposit holdings with the South African banking sector. 

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