The research is to study the determinants of FDI in South Africa. The aim of this research
report is to provide information on how the study is going to be conducted. The proposal is
organised as follows, the first section presents context and background of the study. The
second section sets out the statement of the problem. Sections three and four presents the
objectives of the study and research question or hypotheses of the study respectively. Then,
fifth and six sections present the significance of the study and the outline of the study.
Literature review will be presented in section seven. Finally, research methodology is
presented at the end of the chapter.
1.1 CONTEXT AND BACKGROUND
Investments are the engine of economic growth (Liesbeth et al., 2009) and human
development (Torabi, 2015), due to that it is an effective means to increase wealth in national
economy. Amongst the multiple investments, foreign direct investment (FDI) has a vital
influence on the economic growth of a nation, as a condition to attract investors to develop
and improve the economy and the quality of human resources (Simionescu & Naros, 2019).
Every economy requires foreign direct investment, as it brings in new money to boost the
economy. In its simplest terms, foreign direct investment is acquiring or purchase of an
interest or stake in a firm by a company or an investor located outside its borders. Commonly,
the term is used to explain a business decision to acquire a substantial interest or stake in a
foreign entity or to buy it absolutely in order to expand its operations to a new region. FDI
brings new jobs and more opportunities as investors build new companies in foreign
countries. This can lead to an increase in income and more purchasing power to locals, which
in turn leads to an overall boost of economies. With more mineral deposits being found every
day, Africa has been a huge recipient of FDI, with foreign investors trying to maximise on
abundant mineral resources. PWC South Africa noted that FDI is needed in order to stimulate
economic growth and financial sustainability. However, different scholars have pointed out at
the need for African countries not to hedge on natural resources only to attract FDI. Morisset
(2000) stresses out that African countries have the capacity to be successful in attracting FDI
that is not based on natural resources but rather at regional and global markets, by improving
their business climate.
According to Moreira (2009), in order to improve the climate for FDI, an econometric
analysis for 29 African countries over the period 1990â€97 was made and it indicated that
GDP growth rate and trade openness can be used to increase the interest of foreign investors.
Furthermore, a thorough review of the policy reforms implemented in Mozambique and Mali
indicated that the following strategic actions for their recent success, beyond macroeconomic
and political stability; opening the economy through a trade liberalization reform, launching
an attractive privatization programme, modernizing mining and investment codes and
adopting international agreements related to FDI.
2.0 Problem Statement
Foreign direct investment is anchored on a number of factors. In South Africa a number of
factors affect its inflow. In 2019 FDI inflows were US$4.6billion and they fell to
US$2.5billion in 2020. This however was attributed to the global FDI reduction of 42
percent. This shows how different determinants can affect the inflow of FDI into the country.
Natural resources, good economic policies, GDP, openness, inflation, exchange rate,
corporate tax are among factors that determine the inflow of FDI. The research looks to
clarify the significancy of factors that contribute to FDI inflow. This is important to
understand as FDI has an impact on the country’s economic growth. Therefore understanding
its movement and determinants helps in creating a better environment for an increase in
foreign capital.
3.0 Objectives of the Study
To investigate the determinants of FDI inflow into South Africa
To determine the significance of different factors that affect FDI inflow into South Africa
To assess the relationship between economic growth and FDI
To assess the impact of FDI on economic growth
4.0 Research question/hypothesis
4.1 Research questions
i. What determines FDI inflow into South Africa?
ii. How significant are FDI determinants in attracting FDI?
iii. Does FDI has an impact on economic growth in South Africa?
4.2 Research Hypothesis
This study is based on the hypothesis shown below:
H 0 : There is a positive relationship between FDI and economic growth.
H 1 : There is no relationship between FDI and economic growth.
5.0 Significance of the study
The country’s economic growth has been sluggish over the last 10years. Different theories
are always put in front for the reason for poor growth, and FDI is one of the factors that is put
in front by different scholars. This research is important as it would best describe how FDI
relates to economic growth. It would also investigate into what affects FDI that indirectly
deems to affect the economic growth of the country. Through this study, it can be added upon
and used by other scholars, economic students or government officials who can come up with
extensions to this study so as to combat the sluggish economic growth.
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