The relationship between BRIC's FDI (Foreign Direct Investment) and SADC's exports

Abstract

South Africa was invited to join the Brazil, Russia, India and China (BRIC) group at the end of 2010, mainly because South Africa is viewed as the ‘gateway’ into Africa, and South Africa is also considered to be the link between BRIC and the Southern African Development Community (SADC). It is expected that the BRIC countries will increase their foreign direct investment (FDI) to South Africa. This inflow of BRIC FDI may lead to the advantages of boosting SADC exports, which is important as it may lead to the SADC countries experiencing expanded market opportunities, and exports have for a long time been viewed as an engine of economic growth. It has been further indicated that it is evident that relatively few studies have been conducted on the relationship between FDI and exports within the African context and that this relationship is not well understood. In light of these shortcomings in the literature, the first aim of this study was to attempt to contribute to the literature on FDI in SADC by investigating the relationship between BRIC FDI inflows on SADC exports. From the assessment of recent studies conducted on the relationship between FDI and exports in developed, developing and African countries a number of conclusions have been made. The first was that the majority of the studies conducted between 2000 and 2011 by various authors used causality tests and regression models to determine the relationships between FDI and exports. It also seemed that bi-directional causality is most often found, thereby indicating that FDI has a positive influence on exports and exports also have a positive influence on FDI. The secondary research aim, to determine the specific relationship between the BRIC’s FDI on SADC exports to BRIC and the world, was analysed by means of a descriptive and empirical study (correlation test, regression model, Granger causality test and panel data causality testing method), and the results indicated that, from 2003 to 2011, there was a strong positive correlation between BRIC FDI inflows to SADC and SADC exports to BRIC (59 per cent) and the world (96 per cent). The regression analysis showed that 53 per cent of the variance in the SADC exports to the BRIC is explained by BRIC FDI, while 99 per cent of the variance in the SADC exports to the world is explained by BRIC FDI. Finally the Granger causality test results indicated that BRIC FDI inflows contributed to higher exports from SADC, specifically SADC exports to the world. This was however not the case for SADC exports to BRIC. The results further suggest that there is a possible cointegration between BRIC FDI and the SADC exports to the world, reflecting, among other things, that the simultaneous movement of BRIC FDI inflows with SADC exports to the world may be mainly due to exogenous factors rather than a direct causal relationship. The BRIC FDI inflows on the SADC exports to the world being significant is a motivation for the SADC group to further motivate integration, co-operation and participation within BRIC, as this may possibly lead to further inward FDI flows, which may further promote exports to the world. Future studies would include determining the market forces that contribute to the simultaneous movement of BRIC FDI inflows into SADC, with the SADC exports to the world.