RENEWABLE energy projects powered SA to the top of foreign direct investment (FDI) inflows on the continent, even as investment into Southern African declined in 2015, an EY report published on Monday shows.
SA attracted investment into 130 projects, up from 120 in 2014, which put the country ahead of continental peers including Kenya, Morocco and Egypt, according to the consulting firm.
Despite weak macroeconomic indicators, SA managed to attract 8.3% more in FDI in 2015, with capital investment up 32.5%.
Michael Lalor, head of EY’s Africa Business Centre, said: "A large proportion of the capital-intensive investments were in the renewable energy sector, enabled by the government’s IPP (independent power producers) programme — six projects were in excess of $200m each."
Eskom has ignored the large investments in these programmes and taken a decision to stop buying power from independent power producers, with energy generation head Matshela Koko citing the unavailability of renewable energy sources during peak periods — when needed most.
However, Eskom spokesman Khulu Phasiwe on Monday contradicted Koko.
"All that Eskom has done was to write a letter to the (Department of Energy), asking for clarity or a dialogue regarding the next contracting phase of independent power producers. That does not mean that a decision has been taken to abandon the IPPs."
Lalor said there were also other "fairly large" investments in the automotive sector, including two projects with a price tag of more than $200m.
SA headed up EY’s rankings of the top 15 FDI destination countries on the continent, but it failed to create more jobs than third-ranked Morocco.
"Certain sectors are simply more job-intensive than others," Lalor said.
"SA, for example, attracts a lot of projects in some of the services sectors, which are not as job-intensive as manufacturing-related activities," he said.
"Similarly, while a large proportion of capital was invested in the renewable energy sector, this sector is not a big direct job generator. Morocco has specifically focused on attracting large investment into manufacturing activities, (such as) automotive and food processing, and the direct job-creating impact of this investment is usually higher than in services."
Nonetheless, SA remains a favourite for US investors — which pumped more than a third of $6.9bn destined for the continent to its southernmost tip.
The US invested mostly in Africa’s industrial sector, the EY report shows.
The US invested mostly in Africa’s industrial sector, the EY report shows.
Lalor said that US investors liked the "fundamentals" of the South African market, including its institutions, capital markets, and governance, which they deemed to be strong.
"SA is still viewed as a stable platform from which to expand into other parts of sub-Saharan Africa," Lalor said.
As a result, SA is probably benefiting somewhat from greater levels of uncertainty and higher risk awareness — it is viewed as a relative safe haven."