Following the recently released foreign Direct investment (fDi) Report 2016 on Global greenfield investment trends – annual report focusing on recapping global investment trends.
According to the report, South Africa has once again been confirmed as the “top African destination for inward FDI by project numbers, continuing a long-term trend,” with over 118 FDI projects recorded for year 2015, says Thembinkosi Maduna – CDC Operations Executive Support Services.
The results of the report are a validation of the country’s value proposition as a gateway to the African continent with sound logistical network infrastructure base linking SA with the rest of Africa. The report also highlights that FDI destinations continue to be sought, despite continuing global economic slowdown.
As part of ensuring a comprehensive package to investors, investment aftercare has become acutely important. According to Young and Hood (1994) the term Investment Aftercare is defined as comprising of all potential services offered at a company level or by governments and their agencies. Effectively seeks to design and facilitate both the successful start-up and continuing development of a foreign affiliate in a host country or region with a view of maximising contribution to local economic development.
An important aspect of the “Aftercare Concept” for Industrial Development Zones (IDZ) or Special Economic Zones (ZEZ) is the notion of a responsive and sustainable investment aftercare facility or “One Stop Shop.” In the case of IDZ’s or SEZ’s post investment activities are often located in the Operations Business Unit or Zone Operator.
The importance of investment aftercare is the ability to retain and expand existing investment thus creating employment and supporting economic growth. Examples within the Coega IDZ are the multiple expansions that have seen numerous investors expanding such as Coega Dairy & Cheese – employing over 250 people, Dynamic Commodities – employing over 900 people, Rehau – employing over 319 people, Discovery – employing over 1200 people, just to mention a few.
In a research study conducted at the Coega IDZ in 2015 looking at existing and retained domestic and foreign investors investigating the importance of investment aftercare and expansion in relation with the dominant factors of attracting further investment.
The study found that Operational investors, whether domestic or foreign, generally want the same thing when it comes to investment aftercare.
Some of those things include:
- incentives for land and buildings
- electricity
- location
- basic infrastructure
- exporting environment and
- incentives for exports
Furthermore, through observation the CDC has also identified some key points in its interaction on day to day operational enquiries by existing investors also known as ‘value drivers’ and categorised them according to Dunning’s Electic Paradigm – theoretical framework which incorporates macro, market and micro factors in attracting, retaining and expanding sustainable FDI.
Macro Factors – these comprise of external and uncontrollable forces which affect an organization’s performance and decision making: understanding that foreign investors require various permits to be able to effectively operate in a foreign country, it came as no surprise that legislative bodies play an integral part in ensuring the smooth operation of the businesses. The local, provincial & national government departments are at the foremost interest of investor queries. Mainly due to their provisions to assist with enquiries such as utilities and the facilitation of expired visas namely the local municipality, Department of Home Affairs and the Department of Labour.
Micro Factors – these comprise of internal and controllable forces within an organization: the CDC found that value drivers such as Facilities and Estate Management, Infrastructure Development Department, Security, Telecommunication, Safety, Health, Environment and Quality are at the core of establishing a responsive investor aftercare facility.
Market Factors – These are industry related factors which include bargaining power of suppliers and customers: the last group of value drivers includes drivers operating in the market environment such as the sourcing of suppliers or service providers and networking etc.
As highlighted above, the complex environment of dealing with investors requires extensive experience in both pre and post investment activities. These activities form the basis for a sustainable Investment Promotion Strategy (IPS) in IDZs or SEZs. A sound IPS enables a responsible investment promotion environment.
Alan Straton
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