The impact of Broad-Based Black Economic Empowerment on foreign direct investment inflows into South Africa

Abstract

Foreign Direct Investment (FDI) has become the main source of development capital for emerging markets in the current globalised world. Previous researches have found that fiscal incentives’ capability to attract FDI is very limited, while removal of policy restriction is a determinant in attracting FDI. At the same time, South Africa has embarked on a major transformation programme – Broad-Based Black Economic Empowerment – which has as its main target the need to increase black people’s participation in the economy and to reduce socio-economic inequality. In this context, this research attempts to evaluate the impact of the Broad-Based BEE programme on South Africa’s capability to attract FDI. This quantitative research was done using quasi-experimental methodology, comparing FDI inflows into South Africa with that of other emerging countries of a similar level of development, such as Brazil, Mexico, Chile, Nigeria and Botswana, and against the African continent as a whole. The tests performed give an indication that Broad-Based BEE is indeed impacting on South Africa’s capability to attract FDI, and also that South Africa is losing competitiveness in attracting FDI on the continent. Since the results cannot be generalised nor prove a causal relationship, the main purpose of this research is to enrich the discussion of how to attract more FDI inflows into South Africa, possibly through adjusting the Broad-Based BEE policies, which will contribute to building national competitiveness.