When is Foreign Direct Investment Beneficial to a Country and When Is It Not?

The policy brief argues that foreign direct investment (FDI) does not automatically guarantee economic growth or job creation in South Africa. While FDI can offer benefits like skill transfers and market access, the author notes that certain types, such as retail investment by giants like Walmart, may displace local manufacturers and small businesses. The document highlights a decline in FDI flows to South Africa between 2009 and 2010, but suggests this is not necessarily negative if the focus shifts toward strengthening domestic manufacturing capacity and public infrastructure to build long-term economic confidence.

• Foreign direct investment (FDI) is generally viewed as beneficial for recipient countries through the transfer of management skills, access to new markets, stimulation of domestic competition to reduce inflation, integration into international supply chains, and improved economies of scale.
• FDI flows into South Africa saw a significant decrease of more than 70% in 2010 compared to 2009, with cross-border mergers and acquisitions also dropping by 6.5% during that period.
• The benefits of FDI vary by sector; while there is a positive correlation between FDI and growth in manufacturing, the same is not observed in the primary and services sectors, and some evidence suggests the general effect of FDI on growth can be negative.
• Investment in the retail sector by large foreign entities like Walmart can be detrimental to South Africa's economy by displacing local manufacturers through massive imports and pushing out small economic players via predatory pricing.
• South Africa's FDI has primarily consisted of portfolio investments and mergers and acquisitions, with a notable lack of greenfield investments except during the privatization of state-owned enterprises.
• To attract sustainable FDI and promote industrialization, the South African government should invest in high-standard economic infrastructure, such as roads, rail for African transport, and ports, to facilitate local private investment.
• The document recommends addressing customs fraud through pre-shipment inspections, using voluntary export restraint agreements for strategic sectors under the Industrial Policy Action Plan (IPAP), and implementing employee share ownership schemes to link worker benefits to investment productivity.

APA

Mosia, J. (2012). When is Foreign Direct Investment Beneficial to a Country and When Is It Not? South African Institute of International Affairs. https://saiia.org.za/wp-content/uploads/2012/02/Policy-Briefing-44.pdf

Chicago

Mosia, Jonas. When is Foreign Direct Investment Beneficial to a Country and When Is It Not? South African Institute of International Affairs, 2012. https://saiia.org.za/wp-content/uploads/2012/02/Policy-Briefing-44.pdf.

Wikipedia

{{cite report |last1=Mosia |first1=Jonas |title=When is Foreign Direct Investment Beneficial to a Country and When Is It Not? |publisher=South African Institute of International Affairs |date=February 2012 |url=https://saiia.org.za/wp-content/uploads/2012/02/Policy-Briefing-44.pdf |access-date=17 August 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{mosia2012when, author = {Mosia, Jonas}, title = {{When is Foreign Direct Investment Beneficial to a Country and When Is It Not?}}, institution = {South African Institute of International Affairs}, year = {2012}, month = feb, url = {https://saiia.org.za/wp-content/uploads/2012/02/Policy-Briefing-44.pdf}, urldate = {2026-08-17}, note = {Indexed by Climate Insights Directory} }