The Relationship Between Electricity Prices And Foreign Direct Investment In South Africa

Abstract

Inward foreign direct investment has a considerable impact on host countries' economic growth, especially those that are still in their infant stage. Since 2008, South Africa has endured intermittent electricity supply and rising electricity bills up to this date. Theoretical literature suggests that attracting inward foreign investment depends entirely on the macroeconomic state of the receiving nation. This research empirically examines how electricity tariffs affect the attraction of IFDI in South Africa. To accomplish this for the period 1988-2020, the Autoregressive Distributed Lag (ARDL) co-integration technique is utilized in this research. The study's conclusions showed that there is a long-term connection between inward foreign direct investment, electricity price, electricity supply, inflation and exchange rate, ceteris paribus. Furthermore, the findings indicated that electricity prices and inflation have a detrimental impact on inward foreign direct investment (IFDI). The results of electricity supply and exchange rate revealed that both variables contribute positively towards inward foreign direct investment. Thus, it is recommended that the South African government takes action to lessen the impact of high electricity tariffs on incoming foreign direct investment.