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

This research paper examines the impact of foreign direct investment (FDI) and net investment income on South Africa's current account deficit. It argues that while FDI is beneficial for growth, the trend of transnational companies prioritizing short-term shareholder value over long-term reinvestment creates economic vulnerabilities, particularly during downturns. The author recommends policy shifts to attract FDI that is labour-absorbing, export-oriented, and focused on reinvesting profits within the domestic economy.

• Net investment income is a significant contributor to South Africa's current account deficit, creating vulnerability during economic downturns. This component represents the balance between income payments to foreign investors and receipts from domestic investments abroad.
• Dividend payments on FDI holdings have consistently negatively impacted South Africa's current account since the early 1990s. In 2012, the balance on FDI dividends was -1.81% of GDP, accounting for approximately 28.95% of the total current account balance deficit of -6.26% of GDP.
• A global shift toward 'shareholder value maximisation' leads transnational companies to prioritize short-term dividends over long-term growth and Brownfield reinvestments. This financialisation means firms often raise debt in equity markets for expansion rather than using their own earnings.
• South Africa's current account position is more precarious than other emerging economies because it suffers from both a large investment income deficit and a large trade deficit, whereas others may use trade surpluses to offset income outflows.
• Existing tax allowance incentives for FDI in South Africa are limited because they primarily target the manufacturing industry and require projects to be in industrial development zones for Greenfield investments. Since 2010, 28 of 31 applications were approved, creating 3,600 direct jobs, but the R24 billion budget is nearly exhausted.
• To reduce current account vulnerability, the author recommends attracting FDI into underdeveloped but lucrative sectors and implementing corporate-level incentives (based on firm performance, such as employee training) rather than shareholder-level financial incentives.

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} }