Is there a link between BRIC foreign direct investment and SADC export performance?

Abstract

The BRICS (Brazil, Russia, India, China and South Africa) countries have agreed to strengthen their economic ties, thus paving the way for enhanced trade and investment performance. South Africa's strategic value in BRICS is that it is a gateway to the opportunity-rich Southern African Development Community (SADC). By using South Africa as a production hub for exports to the surrounding region, foreign investors would have ready access to neighbouring markets. This article addresses the question of whether, and in what ways, foreign direct investment (FDI) from the BRIC (Brazil, Russia, India and China) countries to the SADC influences the SADC's export performance. A series of empirical analyses revealed a positive causation between BRIC FDI and SADC exports, offering a clear incentive for the SADC to rejuvenate its trade and investment policies and structures, and strengthen its ties with BRIC countries in the interests of attracting more FDI and building a strong and sustainable export sector.

Keywords:

• BRIC
• BRICS
• foreign direct investment
• exports
• Southern African Development Community

JEL codes:

• F10
• F14
• F21
• F23

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

¹Per-deal basis refers to a measure used to quantify an aspect of one deal concluded by a company. An example would be Barclays Bank (UK) acquiring a stake in ABSA Bank (South Africa) for US$5 billion in 2005.

²It is necessary to include both mergers and acquisitions and Greenfield investments into total FDI outflow data because both could potentially contribute to exports, whether through the production of raw materials, manufactured goods or facilitating exports through the availability of financial services. BRIC Greenfield investments dominate the SADC FDI scene with an average of 81% contribution to total FDI between 2003 and 2010 (FDImarkets, 2012; Zephyr, 2012).

³More specifically, the null hypothesis that the errors are serially uncorrelated is H0: p = 0.

⁴These two SADC member countries were excluded from the analyses due to no inward FDI flows from the BRIC group being recorded during the period under review.

⁵The minimum number of lags that can be added is one.