Foreign direct investment and political risks in South Africa and Nigeria : a comparative analysis

[摘要] ENGLISH ABSTRACT:Instability in foreign political and social systems, changing power structures ininternational relations, and growing demands by host countries for a greater controlover the operations of multinational enterprises (MNEs) have all led to the necessityof an improved way in which to determine foreign investment opportunities. Notsurprisingly therefore, political risk assessment has become one of the fastest growingfields of study. Being concerned with the identification, analysis, management, andreduction of socio-political risks for foreign investors. The focus of this study is thatof political risk analysis and the way in which it impacts on investor perception andconsequently determines levels of foreign direct investment received by a particularcountry.Numerous definitions for the term political risk exist. Consequently, no specificdefinition is regarded as being completely correct since consensus still needs to bereached. One of the definitions used within this study is that political risk analysis isthe analysis of the possibility that factors caused or influenced by governmentalpolitical decisions or other unforeseen events in a country will affect businessclimates in such a way that investors will lose money or not make as much profit asthey expected when the initial decision to invest was made. These factors can be ofinternal (from inside the host country) or external origin, and can pose macro or microrisks. Foreign Direct Investment in brief is an investment involving a long-termrelationship and reflecting a lasting interest and control of a resident entity in oneeconomy in an enterprise resident in an economy other than that of the foreign directinvestor.This study is a comparative between South Africa and Nigeria. South Africa andNigeria share many similarities, they are both resource based, African countries. Theyare both fairly recent democracies, although some may contest the status of Nigeria asbeing a democracy. They are also both heterogeneous states, both consisting ofvarious ethnic groups. Nigeria offers investors a low-cost labour pool, abundant natural resources, and alarge domestic market. However, Nigeria suffers from an inadequate and poorlymaintained infrastructure, confusing and inconsistent regulations, endemic corruption,and a lack of confidence in the rule of law. Despite all of this, Nigeria alone accountsfor a quarter of FDI flows to Africa. In comparison, South Africa's FDI potential hasnot been fully exploited. This study will discuss the possible reasons why this is thecase.The labour market in both countries and the challenges they face are discussed indepth within this study. Due to the fact that aside from investment, the economicgrowth within a country is dependent on a variety of factors, the backbone of which isthe labour market.In determining levels of risk within both South Africa and Nigeria, this study madeuse of a political risk model. Although the intention has been to be as accurate and asthorough as possible, it should be noted that as yet, no generalised systematic methodof conducting political risk assessment exists. Results, although extensivelysubstantiated, remains the interpretation of the researcher and as such remains open todebate.

[发布机构] Stellenbosch University