The impact of electricity prices and supply on attracting FDI to South Africa

Abstract

Inward Foreign Direct Investment (FDI) plays an important role on the overall economic conditions of host countries, particularly the ones that are still in low developmental stages. South Africa (SA) as an example of this group of countries has also experienced intermittent electricity supply and increasing electricity tariffs since 2008. As the literature suggests that attracting FDI depends on the conditions of the host country, the main purpose of this study is to examine the impact that electricity prices and supply, as representatives of the energy conditions of SA as a host country, had to the attractiveness of FDI to SA. To do so, this study uses the Autoregressive Distributed Lag (ARDL) cointegration approach for the period 1985 to 2018. The findings of the study indicated that indeed the initial hypotheses have been confirmed: (1) electricity supply is a positive contributor to inward FDI, ceteris paribus, and (2) electricity prices are a negative contributor to inward FDI, ceteris paribus.