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Investment for Industrial Growth: Pathways to Development

This workshop focuses on the essential role of investment in promoting industrialization, trade, and economic growth for development. The event explores the interconnections of investment, trade, and industrial development dynamics, emphasizing the significance of foreign direct investment (FDI). Key discussions will cover global governance developments, financing for sustainable growth, and the Southern African perspective on FDI. Participants will delve into managing the complexities of trade-investment-growth-development linkages to achieve inclusive and sustainable development outcomes.

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Investment for Industrial Growth: Pathways to Development

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  1. Investment in promoting industrialisation, trade and economic growth and development - focus on foreign direct investment TrudiHartzenberg trudi@tralac.org Portfolio Committee – Investment Workshop 21-22 July 2015

  2. CONTEXT • Global features of industrial organisation (GVCs, fragmentation, servicification of production) – interconnections among investment, trade, industrial development dynamics • Role of emerging markets - investment sources and destinations • New pathways to industrialisation, inclusive growth and development outcomes • Global governance developments: lack of enthusiasm for multilateral governance solutions; (evidence of governance fragmentation) – no multilateral investment agreement • FINANCING FOR DEVELOPMENT (ADDIS CONFERENCE) AND SDG’S (SEPETMBER 2015)

  3. THREE PILLARS of SUSTAINABLE GROWTH AND DEVELOPMENT • Building a productive capital stock through investment • Production structure • Infrastructure • Human capital development • Education and skills development • Expanding domestic knowledge systems and ‘absorptive capacity’ of firms (emphasis on science and technology) • Institution building • Rules of the game (Northian definition) • Organisations and appropriate policies

  4. INVESTMENT – Indispensible for growth and development • Capital formation a prerequisite for growth and development → growing the GFI/GDP ratio (South Africa 2012: 19.2%) • Investment function is complex with many independent variables; also depends on the other two pillars being conducive to investment • NOTE • Quality of growth will depend on quality of investment; e.g. capital can be substituted for labour through mechanisation which is not socially beneficial • Rapid urbanisation creates a demand for mega investment in infrastructure; how will this be financed? • Investment in production structure should not underestimate importance of the services sector, which can be tradable and support competitiveness and trade in goods

  5. FOREIGN DIRECT INVESTMENT • Savings gap because of poverty demands FDI to fill the gap • Since mid-1990s FDI as share of capital formation has been increasing in Africa • IMPORTANT MATTERS: • In Africa mostly attracted into isolated enclaves of primary production with limited linkages to rest of economy • Is it crowding-in or crowding-out domestic investment? • Risk profile of investment (sector specific matters) • Role of incentives (incentives for foreign vs domestic investors)

  6. LOCATION DETERMINANTS OF FDI • Motivation for the FDI (market seeking; resource seeking, efficiency seeking and asset augmentation) • Economic and business environment of host, or potential host, countries, and the FDI- related policies pursued by their governments • Mode of entry or expansion of the FDI (greenfield FDI or mergers and acquisitions) Note: factors influencing risk-return equation (role of policy uncertainty)

  7. A SOUTHERN AFRICAN PERSPECTIVE • During 1999-2003 Angola and SA consistently among top 10 FDI recipients of FDI in SSA • Angola illustrates the paradox of FDI • mineral rent-seeking FDI occurring without other pillars of development in place • typical enclave type investment with few domestic spillovers • South Africa is a prominent recipient but also a major origin of FDI in the region and the rest of Africa • As FDI recipient, M&A an important form • Long term capital inflows vs portfolio investment

  8. MANAGING TRADE-INESTMENT-GROWTH-DEVELOPMENT COMPLEX • Investors, producers, traders– agents of inclusive growth, partners to government to achieve development outcomes • Trade matters: increases demand/market size; opportunities for economies of scale; technology transfer (market access issues) • Investment matters: enhancing capacity to produce tradeables; economic diversification; strengthening linkages and relationships in economy • Industrial development pathways – GVCs (production fragmentation – investment as the flip-side of trade) • Growth – development (quality of growth => development; addressing poverty, job creation)

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