South Africa and FDI

In today's HBS Working Knowledge Newsletter, Martha Legace interviews HBS Assistant Professor Eric Werker about his recent research about FDI in South Africa after the fall of apartheid. Werker discovered that the FDI was around 2/3 less than other emerging markets, thus our conventional thinking may be challenged.

Werker suggests that perhaps there were two economies, not just one emerging one. To borrow an excerpt from the interview:

When the economy opened up following the end of apartheid and the end of sanctions, these conglomerates shed their non-core assets—which left them cash-rich. What resulted remained fairly concentrated industries, but the companies weren't necessarily the inefficient companies that had characterized the apartheid era.

So South African firms had money to invest. They also had a large market share within their industry; and this, of course, wouldn't be a great environment for someone to go in and set up a new shop. If there are three or four firms sharing an industry, they're probably making money and if you were to come in and undercut on cost, for example, you would have to face the potential retaliatory measures of the stalwarts of the industry.

And with their cash from shedding the non-core assets, South African firms had begun themselves to look for new opportunities.

Read the rest of the interview here.

Tags: FDI, South Africa, emerging markets, international political economy, Eric Werker, HBS Working Knowledge, u2iperg