The Dark Side of Foreign Direct Investment: A South African Perspective

The paper argues that while FDI is beneficial for growth, the tendency of transnational companies to prioritize short-term shareholder dividends over long-term reinvestment (Brownfield investments) exacerbates current account deficits in middle-income countries. In South Africa, this is particularly acute because large investment income outflows are not offset by a trade surplus, unlike in some other BRIC nations. The author recommends shifting policy toward attracting 'quality' FDI that is labour-absorbing and export-oriented, utilizing corporate-level incentives to encourage the reinvestment of profits into the domestic economy.

• Net investment income is a significant driver of South Africa's current account deficit, with dividend payments on FDI holdings contributing substantially to this imbalance. For example, in 2012, the balance on FDI dividends was -1.81% of GDP, representing approximately 28.95% of the total current account balance.
• South Africa's external vulnerability is higher than that of some other emerging economies because it lacks a trade surplus to offset investment income outflows. In contrast, countries like Russia and Brazil have seen trade balance inflows that help mitigate the impact of net investment income deficits.
• A global shift toward 'financialisation' has led non-financial corporations to prioritize the maximisation of shareholder value over long-term growth. This results in firms declaring dividends to boost share prices rather than funding expansion through reinvested earnings, which increases capital outflows from host countries.
• The author argues that FDI in South Africa is overly concentrated in minerals, energy, and financial sectors. To reduce vulnerability, the government should channel investment into labour-absorbing, export-oriented industries such as agri-processing, light manufacturing, and professional services.
• Existing tax incentive schemes in South Africa, such as those for capital equipment and training, are limited because they primarily target the manufacturing industry and are subject to strict point-based criteria. The author suggests moving toward corporate-level incentives that reward firm characteristics (like employee training) rather than financial characteristics.

APA

Samuel, C. (2013). The Dark Side of Foreign Direct Investment: A South African Perspective. South African Institute of International Affairs. https://saiia.org.za/wp-content/uploads/2013/12/Occasional-Paper-167.pdf

Chicago

Samuel, Cézanne. The Dark Side of Foreign Direct Investment: A South African Perspective. South African Institute of International Affairs, 2013. https://saiia.org.za/wp-content/uploads/2013/12/Occasional-Paper-167.pdf.

Wikipedia

{{cite report |last1=Samuel |first1=Cézanne |title=The Dark Side of Foreign Direct Investment: A South African Perspective |publisher=South African Institute of International Affairs |date=December 2013 |url=https://saiia.org.za/wp-content/uploads/2013/12/Occasional-Paper-167.pdf |access-date=17 August 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{samuel2013dark, author = {Samuel, Cézanne}, title = {{The Dark Side of Foreign Direct Investment: A South African Perspective}}, institution = {South African Institute of International Affairs}, year = {2013}, month = dec, url = {https://saiia.org.za/wp-content/uploads/2013/12/Occasional-Paper-167.pdf}, urldate = {2026-08-17}, note = {Indexed by Climate Insights Directory} }