South African IPAs Attracting FDI: Investment Promotion Strategies

Abstract

The provincial investment promotion agencies (IPAs) of South Africa play an important role to attract foreign direct investment (FDI) to the country. In order to do so, investment promotion strategies are developed and executed. This study investigates how the provincial IPAs of South Africa use their investment promotion strategies and points out the gaps in their strategies to attract FDI and improve on the approximate mean of 0.25% of the total world investment inflows from abroad. This contributes to their mandate and goals, which are to enhance economic development and contribute to economic growth by attracting FDI and to assist domestic companies to invest abroad. Both primary and secondary data are used. The study highlights that the majority of the provincial IPAs operate under government direction and that there are significant differences in the investment promotion strategies used. The study finds that 21-40% of budgets allocated for investment promotion go towards perception building. Macroeconomic and industrial policies are the most relevant factors when attracting FDI by the IPAs. The investment promotion (IP) strategies used by the provincial IPAs differ in terms of the investors they focus, the incentives used to attract those investors and the preferred contact method with the targeted investors. IPAs indicated that they use more tax incentives along with tailor made industrial policies, focussed on the specific needs of the investors.