Foreign Direct Investment (FDI) is a key driver of economic growth, particularly for developing countries seeking to industrialise and improve their economies. South Africa has recognized the importance of FDI and has implemented reforms to attract foreign investments. Over the past two decades, various initiatives have been undertaken to increase FDI flows. President Cyril Ramaphosa has pledged to bring 100 billion in FDI to support long-term economic and social growth in the country. To achieve this objective, it is crucial to identify the specific measures that can facilitate the process. This study investigates the macroeconomic determinants of FDI inflows to South Africa using annual time series data from 1980 to 2023 and employs the Autoregressive Distributed Lag (ARDL) bounds testing approach. The analysis focuses on key macroeconomic variables, including inflation, government expenditure, exchange rate, market size, and trade openness. The bounds test confirms the existence of cointegration among the variables, signifying a stable long-run equilibrium relationship. However, the estimated coefficients show that none of the macroeconomic variables are statistically significant in explaining FDI inflows. These results suggest that while macroeconomic fundamentals provide a supportive environment, institutional quality, structural conditions, and policy consistency play a more decisive role in shaping FDI inflows. The study highlights the need to strengthen governance and investor confidence to sustain FDI growth.
Meshel Muzuva (Sat,) studied this question.