Foreign Investors Shying away from South Africa

A faltering economy and civil unrest are turning away potential foreign investment in South Africa. The unemployment rate is at an 11 year high of 26.4% and the stagnating economy does not provide an optimistic outlook for this rate to drop. This bleak forecast is causing massive amounts of civil unrest in the form of violent protests all across the nation.

The root of the economic woes facing the nation resides in the power industry, specifically the state run power provider Eskom Holdings, which generates virtually all of the power in South Africa, and about half of the electricity in Africa. Mismanagement and severely outdated infrastructure are causing Eskom’s power supply to continually fall below the nation's power demand, leading to constant power outages across the nation.

The constant shortage of power is not only a hassle for everyday citizens, it is crippling industry in the nation. Most notably, the shortage is affecting the mining industry, which accounts for 15% of the nation’s electricity usage and 60% of the nation’s exports. These mining companies, and other electricity intensive companies, would be devastated by a prolonged power outage. This being the case, they have opted to enter into individual agreements with Eskom, in which they agree to reduce their power usage to specified levels in exchange for assurance that their power will not be suddenly cut off.

Mines and factories operating at these reduced power levels is causing a steep drop in their productivity and efficiency, which in turn leads to the high unemployment levels that have hovered around 25% for years. The unemployment problem is even greater for the younger age demographic, where economists estimate that the real unemployment rate for those under 25 years old is over 50%. Many of these young, unemployed South Africans are pinning the high unemployment on foreigners, mainly from other African nations, taking their jobs. This has resulted in several xenophobic anti-immigration protests, most of which have turned violent. At least 7 foreigners have been killed in these riots and thousands more have fled as protesters ransacked and destroyed their shops.

Overall the power situation and civil unrest have caused potential investors to shy away from South Africa. Until these power grid issues are resolved and the civil unrest is quelled, it is unlikely that South Africa will receive any substantial amount of foreign investment to help jump-start its stagnant economy.