Do offshore investments benefit South Africans

1
Do offshore investments benefit South Africans
Dr Iraj Abedian Director Group Economist,
Standard Bank
2
Presentation outline

• Introductory observations
• Offshore Investment A Macro Perspective
• Offshore Investment A Micro Perspective
• Offshore Investment A General Equilibrium View
• Concluding remarks

3
Introductory Observations

• The question is a loaded one! Its answer is both
  complex and indeterminate.
• South Africans do not have a convergent
  interest as regards offshore investment!
• Partial equilibrium and general equilibrium
  answers to this question differ considerably.

4
From a macroeconomic perspective

• The opening up of the economy is a strategic
  choice. The ultimate objective, in the medium
  term, is to be a net-importer of capital.
• The diversification of the economys revenue
  streams is beneficial.
• The inflows and outflows are interrelated.
• Control on outflows creates hot house effects
  and affects the rate of return on capital/savings
  as well as the national welfare.
• The short term is dominated by our autarkic
  past outflows may well dominate.

5
Since 1994 Opening up of the economy
has paid off
6
Volatility of emerging markets GDP growth (1994
- 2001)
Standard deviation
Source IMF World Economic Outlook, Standard Bank
Economics
7
Multi-factor productivity in South Africa rising
steadily
Index 1995100
Source Quantec
8
Fixed capital productivity is on the rise
Index 1995100
Source Quantec
9
Labour productivity unit labour cost trends are
converging
Unit Labour Cost
Labour Productivity
10
Domestic private sector leading the investment
drive
Quarter-on-quarter, seasonally adjusted at an
annual rate
Private sector fixed investment
Total investment
1998
1996
1999
1997
2000
2001
2002
11
From a microeconomic perspective

• The choice of investment region is affected by
  prospects for returns over time.
• Individuals and companies have to exercise
  judgement over the outlook for growth, the level
  of diversification, and the short term versus
  long term prospects.
• National as well as family welfare is affected by
  the universe of options open for investment.
• For companies with global prospect, the cost of
  capital as well as the stability of
  socio-economic environment are additional factors
  to consider.

12
Concluding remarks

• Simplistic answers to this complex question are
  misleading at best.
• Offshore investments could be beneficial or
  unfavourable, it all depends on the regulatory
  framework within which these are done.
• Given that in an integrated global economy,
  autarky is no longer sustainable, the attention
  should focus on the governance framework for
  offshore investments as opposed to academic
  debate on their usefulness.

13

• The end
• Comments Questions?
• Contact details
• Tel [phone]
• www.ed.standardbank.co.za