ADMINISTRATIVE BARRIERS ENCOUNTERED IN
SOUTH AFRICA BY FOREIGN INVESTORS
by
Isaac Mpofu
Submitted in fulfilment of the requirements for the degree
Magister Philosophiae
in
Business Management
in the
Faculty of Management
at the
University of Johannesburg
Supervisor: Miss A. Makka
Co-supervisor: Dr G. Goldman
Johannesburg, January 2012
i ABSTRACT
The role of foreign direct investment, in driving economic growth and development has been a contested one. There have always been views in favour of FDI and against. Foreign investment is attracted by predictable, transparent, non- discriminatory regulations of the host country. Consequently, negative administrative barriers (legal and regulatory requirements for establishing, operating and locating a business) can deter foreign investors.
Administrative processes in South Africa are not consistent, efficient and transparent and they generally interfere with the operation of free markets. Theoretically, foreign investors are likely to invest in countries where administrative processes are consistent, efficient, transparent and high levels of certainty.
This study‘s aims were to identify administrative barriers encountered in South Africa by foreign investor and to ascertain the levels of consistency, efficiency and transparency of administrative procedures. The study further propose solutions aimed at improving the levels of consistency, transparency and efficiency of administrative processes in order to easy, simplify or mitigate the burden of these processes.
The study adopted a positivistic view and descriptive research method was employed. The survey questionnaire was used as the main data-gathering instrument for this study. The study found out that there were high levels of administrative barriers to foreign direct investment in South Africa and the processes were not consistency, efficient and transparent. The main conclusions drawn from this research were that current administrative processes to foreign direct investment are barriers to investment as they add an extra burden and cost to the investor investing in South Africa. This study proposed a multi-pronged administrative simplification strategies aimed at reducing and simplifying administrative processes.
ii DECLARATION
I, Isaac Mpofu, declare that this research report is my own work except as indicated in the references and acknowledgements. It is submitted in partial fulfilment of the requirements for the degree of Magister Philosophiae in Business Management at the University of Johannesburg. It has not been submitted before for any degree or examination in this or any other university.
Isaac Mpofu
Student Number: 200582511
Signed at ……………………………………………………
On the …………………………….. day of ………………………… 2012
iii ACKNOWLEDGEMENTS
I would like to take this opportunity to give my most sincere gratitude to the following people. Without you, this journey would have been really lonely.
Firstly, to my supervisors, Miss Anoosha Makka and Dr Geoff Goldman, whose encouragement, guidance and support from the initial to the final level enabled me to develop an understanding of the subject,
Secondly, to STATKON, for assisting with the design, data capturing and analysis for this study,
Thirdly, to Mrs Melissa Davidson for editing and proof reading, and
Lastly, I wish to extend special thanks to my family and to all those who supported me in any respect during the completion of this study.
Thank you all, I really appreciate it.
Isaac Mpofu
iv
AFFIDAVIT: MASTER’S AND DOCTORAL STUDENTS
TO WHOM IT MAY CONCERN
This serves to confirm that I Isaac Mpofu
(Full Name(s) and Surname
ID Number 7408046316807
Student number 200582511 enrolled for the
Qualification Magister Philosophiae in Business Management
Faculty of Management
Herewith declare that my academic work is in line with the Plagiarism Policy of the University of Johannesburg which I am familiar with.
I further declare that the work presented in the dissertation
(minor dissertation/dissertation/thesis) is authentic and original unless clearly indicated otherwise and in such instances full reference to the source is acknowledged and I do not pretend to receive any credit for such acknowledged quotations, and that there is no copyright infringement in my work. I declare that no unethical research practices were used or material gained through dishonesty. I understand that plagiarism is a serious offence and that should I contravene the Plagiarism Policy notwithstanding signing this affidavit, I may be found guilty of a serious criminal offence (perjury) that would amongst other consequences compel the UJ to inform all other tertiary institutions of the offence and to issue a corresponding certificate of reprehensible academic conduct to whomever requests such a certificate from the institution.
Signed at ______on this ______day of ______2012.
Signature______Print name ISAAC MPOFU
STAMP COMMISSIONER OF OATHS
Affidavit certified by a Commissioner of Oaths
This affidavit conforms with the requirements of the JUSTICES OF THE PEACE AND COMMISSIONERS OF OATHS ACT 16 OF 1963 and the applicable Regulations published in the GG GNR 1258 of 21 July 1972; GN 903 of 10 July 1998; GN 109 of 2 February 2001 as amended.
v ABBREVIATIONS
ABSA - Amalgamated Bank of South Africa
ANC - African National Congress
ASGI-SA - Accelerated and Shared Growth Initiative for South Africa
BC – Before Christ
BEE - Black economic empowerment
B-BBEE - Broad Based Black Economic Empowerment
BMW - Bayerische Motoren Werke
BP - British Petroleum
BPM5 - Balance of Payments Manual, fifth edition (IMF)
BRIC - Brazil, Russia, India and China
BRICS - Brazil, Russia, India, China and South Africa
CIPC - Companies and Intellectual Property Commission
CIPRO - Companies and Intellectual Property Registration Office
CIS - Commonwealth of Independent States
COSATU - Congress of South African Trade Unions
CUTS - Consumer Unity and Trust Society
DCA - Development and Cooperation Agreement
DHA – Department of Home Affairs
DTI - Department of Trade and Industry
EFTA - European Free Trade Association
vi EME - Emerging Market Economies
EPWP - Expanded Public Works Program
EU - European Union
FDI - Foreign Direct Investment
FIAS - Foreign Investment Advisory Service
GATT - General Agreement on Tariffs and Trade
GEAR - Growth, Employment and Redistribution Program
GDP - Gross Domestic Product
ILO - International Labor Organisation
IMF - International Monetary Fund
IPA – Investment Promotion Agency
JIPSA - Joint Initiative for Priority Skills Acquisition
M&A - Mergers and Acquisitions
MIGA - Multilateral Investment Guarantee Agency
MNE or MNC - Multinational Enterprise or Multinational Corporation
MOI - Memorandum of Incorporation
NEPAD - New Partnership for Africa's Development
OECD - Organisation for Economic Cooperation and Development
OLI – Ownership, Location and Internalisation
PAYE - Pay As You Earn
SA – South Africa
vii SACU - Southern African Customs Union
SADC - Southern African Development Community
SAPA – South African Press Association
SARB – South African Reserve Bank
SARS - South African Revenue Service
SPSS - Statistical Package for the Social Sciences
TISA - Trade and Investment South Africa
UN – United Nations
UNCTAD - United Nations Conference on Trade and Development
U.S.A - United States of America
WIR - World investment report
WTO - World Trade Organization
WWII - Second World War
viii TABLE OF CONTENTS
ABSTRACT ...... II
DECLARATION ...... III
ACKNOWLEDGEMENTS...... IV
ABBREVIATIONS ...... VI
LIST OF TABLES ...... XII
LIST OF FIGURES ...... XIV
CHAPTER 1: INTRODUCTION ...... 1
1.1 Background to the study ...... 1 1.2 Problem statement ...... 8 1.3 Objectives of the study ...... 10 1.4 Research questions and hypothesis ...... 11 1.5 The significance of the study ...... 11 1.6 Delimitations ...... 12 1.7 Study chapters discussion ...... 13 1.8 Chapter summary ...... 13
CHAPTER 2: LITERATURE REVIEW ...... 14
2.1 Introduction ...... 14 2.2 A brief history of foreign direct investment ...... 15 2.2.1 FDI in Europe and America ...... 15 2.2.2 FDI in South Africa ...... 16 2.3 Factors driving FDI inflow into South Africa ...... 17 2.3.1 Market-seeking ...... 18 2.3.2 Natural-resource-seeking ...... 18 2.3.3 Efficiency-seeking ...... 18 2.4 The impact of FDI on South Africa ...... 19 2.4.1 The positive implications of FDI for South Africa ...... 19 2.4.2 The negative implications of FDI for South Africa ...... 21 2.5 Macroeconomic environment ...... 23 2.5.1 South Africa at a glance ...... 23 2.5.2 Immigration ...... 25 2.5.3 Law ...... 25 2.5.4 Industrial Relations ...... 26 2.5.5 Foreign investment ...... 26 2.6 Investment climate ...... 27 2.6.1 Brief review of doing business in South Africa ...... 28
ix 2.7 Administrative barriers ...... 35 2.8 Causes and effects of administrative barriers...... 37 2.9 Bilateral and multilateral investment agreements ...... 39 2.10 Conclusion ...... 41
CHAPTER 3: RESEARCH METHODOLOGY ...... 43
3.1 Research philosophy ...... 44 3.2 Research approach and strategy ...... 44 3.3 Data collection methods ...... 45 3.3.1 Instrument ...... 46 3.3.2 Questionnaire development process ...... 47 3.3.3 Pre-testing / pilot study ...... 47 3.4 Research population and sampling ...... 48 3.4.1 Population ...... 48 3.4.2 Specifying sample method ...... 50 3.5 Procedure for data collection ...... 51 3.6 Data analysis and interpretation ...... 52 3.6.1 Data coding and editing...... 52 3.7 Statistical procedures ...... 53 3.7.1 Descriptive analysis ...... 53 3.7.2 Graphic presentation of data ...... 53 3.8 Validity and reliability ...... 54 3.8.1 Validity ...... 55 3.8.2 External validity ...... 55 3.8.3 Reliability ...... 55 3.8.4 Factor Analysis and Reliability of Data ...... 56 3.9 Ethical considerations ...... 57 3.10 Limitations of the study ...... 57 3.11 Conclusion ...... 58
CHAPTER 4: DATA MANAGEMENT, ANALYSIS AND INTERPRETATION . 59
4.1 Introduction ...... 59 4.1.1 Data Analysis (statistical) ...... 61 4.1.2 Advantages of non-parametric methods ...... 62 4.2 Response rate of survey ...... 62 4.3 Demographic characteristics of respondents...... 64 4.3.1 Distribution of respondents by job position ...... 64 4.3.2 Distribution of respondents by primary industry sector ...... 65 4.3.3 Location of responding company ...... 66 4.3.4 Summary of demographic details ...... 67 4.4 Perception of the respondents – descriptive data ...... 68 4.4.1 Summary of descriptive data ...... 75 4.5 Homogeneity of variances...... 77 4.5.1 One-way ANOVA ...... 77 4.6 Factor analysis and reliability of data ...... 78
x 4.7 Conclusion ...... 79
CHAPTER 5: CONCLUSIONS, RECOMMENDATIONS AND IMPLICATIONS FOR FUTURE STUDY ...... 80
5.1 Introduction ...... 80 5.2 Overview of the study ...... 80 5.3 Causes of administrative barriers in South Africa ...... 81 5.3.1 Lack of knowledge of government staff ...... 82 5.3.2 Lack of transparency, and corruption ...... 82 5.3.3 Excessive documentation requirements ...... 82 5.3.4 Lack of coordination between government agencies ...... 82 5.3.5 Insufficient use of information and technology ...... 83 5.4 Conclusions as per study objectives ...... 83 5.4.1 The study objective ...... 83 5.5 Processes ...... 85 5.5.1 Consistency of administrative processes ...... 85 5.5.2 Efficiency of administrative processes ...... 85 5.5.3 Transparency of administrative processes ...... 85 5.6 Recommendations ...... 86 5.6.1 Identifying the problem areas ...... 87 5.6.2 Administrative simplification programme ...... 88 5.7 Study hypothesis ...... 91 5.8 Implications for further study ...... 92 5.9 Conclusion ...... 92
REFERENCES ...... 94
APPENDIX A: QUESTIONNAIRE ...... 112
APPENDIX B: DEMOGRAPHICS RESULTS ...... 115
APPENDIX C: DESCRIPTIVE STATISTICS ...... 117
APPENDIX D: FREQUENCY TABLE ...... 118
APPENDIX E: FACTOR ANALYSIS ...... 125
APPENDIX F: ONE-WAY ANOVA ...... 126
xi LIST OF TABLES
Table 4.1: Average Telephone Survey Response Rates in the U.S., 2004 ...... 63
Table 4.2: Job Position ...... 64
Table 4.3: Primary industry sector ...... 65
Table 4.4: Location of responding company ...... 67
Table 4.5: Approval process ...... 68
Table 4.6: Efficiency - approvals ...... 69
Table 4.7: Speed of resolving queries ...... 69
Table 4.8: Consistency of approval for inward FDI ...... 70
Table 4.9: Transparency on registering a company ...... 70
Table 4.10: Transparency on registering a company ...... 71
Table 4.11: Efficiency of permits approvals for expatriates ...... 71
Table 4.12: Transparency of permits approvals for expatriates ...... 72
Table 4.13: Consistency of compliance and inspections ...... 72
Table 4.14: Consistency of compliance and inspections ...... 73
Table 4.15: Efficiency of coordination amongst government department ...... 73
Table 4.16: Competence of authorities ...... 74
Table 4.17: Explicit or implicit need to give bribes ...... 74
Table 4.18: Excessive paperwork ...... 75
Table 4.19: Consistency, efficiency & transparency of administrative processes 75
Table 4.20: Summary of descriptive data ...... 76
xii Table 4.21: One-way ANOVA ...... 77
Table 4.22: Reliability of statistics ...... 78
Table 5.1: Transparency International World Corruption Index (Corruption Perceptions Index (CPI) ...... 86
xiii LIST OF FIGURES
Figure 1.1: FDI in high-income and developing economies, 1970–2009 ...... 1
Figure 2.1: Summary of procedures on construction permits in South Africa...... 33
Figure 3.1: Research Process ―Onion‖ ...... 43
Table 3.1: Scale ...... 46
Figure 3.2: Research population and sample flow chart ...... 51
Figure 3.3: Illustration of reliable and valid measures ...... 54
Figure 4.1: Data collection, management, analysis and presentation flow chart .. 60
Figure 4.2: Percentage participation in the survey ...... 63
Figure 4.3: Job Position ...... 65
Figure 4.4: Primary industry sector ...... 66
Figure 4.6: Mean values of processes ...... 76
Figure 4.7: Output of the ANOVA analysis ...... 78
Figure 5.1: The cycle of reform ...... 87
Figure 5.2: Transparency of authorisation ...... 91
xiv Administrative Barriers Encountered in South Africa by Foreign Investors
CHAPTER 1: INTRODUCTION
1.1 Background to the study
The role of foreign direct investment (FDI), in driving economic growth and development has been a contested one ever since the United Nations (UN) development decade of the 1960s according to te Velde (2006). There have always been views in favour of FDI and against it (Feldstein, 2000, Ngowi, 2001, te Velde, 2006, UNCTAD, 2008). Proponents of FDI argue that it leads to economic growth and productivity in the country, but others stress the risk of FDI destroying local capabilities and extracting natural resources without adequately compensating poor countries (Ngowi, 2001, te Velde, 2006).
Economic activities between people in different geographic locations have existed for centuries (Dutt, 2001). FDI has occurred throughout history; from the merchants of Sumer around 2500 BC to the East India Company in the 17th century, investors routinely entered new markets in foreign dominions according to World Bank (2009). Global FDI totalled $13.3 billion in 1970; by 2007 it was nearly 150 times higher, peaking at $1.9 trillion and dropping to $400 billion at the end of 2009 (Figure 1.1) (World Bank, 2010).
Figure 1.1: FDI in high-income and developing economies, 1970–2009
Source: UNCTAD, Foreign Direct Investment Online, http://stats.unctad.org/fdi.
1 | 126 Administrative Barriers Encountered in South Africa by Foreign Investors
A major change over the past three decades has been that governments have become more favourable towards FDI, and have liberalised their FDI regime accordingly (te Velde, 2006). In this context, a global network of 80 000 multinational corporations and 800 000 foreign affiliates has helped create millions of jobs, transferred technology, upgraded skills, fostered competition, and contributed to the fiscal standing of many economies (Feldstein, 2000, Ngowi, 2001, UNCTAD, 2008). Mostly, those countries that can offer the right combination of consistency, efficiency and transparency of administrative processes are benefiting from the inflows of foreign capital in the form of FDI (United Nations, 2003).
The term ―Foreign Direct Investment,‖ or ―FDI,‖ encompasses two related but different sets of topics or activities, explained by different theories and by different branches of economics according to Lipsey (2001). The first is referred to as the international finance, or macro, view and the second is referred to as the industrial organisation, or micro, view (Lipsey, 2001).
The macro view sees FDI as a particular form of the flow of capital across national borders, from home countries to host countries, measured in Balance of Payments Statistics (Lipsey, 2001). The International Monetary Fund (IMF) (1993) defines FDI as a category of international investment in which an enterprise resident in one economy (the direct investor) obtains a lasting interest in an enterprise resident in another economy (the direct investment enterprise).
The micro view tries to explain the motivations for investment in controlled foreign operations, from the viewpoint of the investor (Lipsey, 2001). While, Mwilima (2003) refers to FDI as an investment made to acquire a lasting management interest (usually at least 10 % of voting stock) and acquiring at least 10% of equity share in an enterprise operating in a country other than the home country of the investor. The motivation of the direct investor is a strategic long-term relationship with the direct investment enterprise to ensure a significant degree of influence by the direct investor in the management of the direct investment enterprise (OECD, 2008).
2 | 126 Administrative Barriers Encountered in South Africa by Foreign Investors
Administrative barriers are obstacles that interfere with the basic freedoms and rights of investors in a free market or with equal competition in the market (Cavusgil, Knight & Riesenberger, 2008). Administrative barriers are characterised by processes that are quite longwinded and interrelated, resulting in procedures that are not consistent, efficient and transparent (Bhuiyan, 2003).
Administrative barriers arise in particular from the information and documentation requirements imposed upon foreign direct investors by the enforcement of processes that are not consistent, efficient and transparent (Visser, 2008). Administrative barriers in this study include regulatory barriers, that is, barriers that arise from existing rules and regulations that are hampering the flow of foreign direct investment to South Africa. When such requirements are particularly burdensome or obstructive, or otherwise hamper operators or shippers in business activities, they are called administrative barriers (Visser, 2008). Poor policy design and implementation, competitive weakness, structural impediments, poor infrastructure and skills, weak institutions and poor governance all are part of the administrative problems or impediments that may discourage potential foreign direct investment (Lowther & Silva-Leander, 2006).
According to the Foreign Investment Advisory Service (FIAS) (1999), consistency refers to the fair, uniform and equitable treatment of businesses by the South African government to ensure that some enterprises do not obtain unfair advantages through special arrangements (legal or otherwise) with government officials. Transparency refers to the availability and reliability of information on relevant business and investment laws, regulations, requirements and procedures, as well as clear processes for obtaining necessary administrative approvals (Bhuyan, 2006). Efficiency refers to the speed with which government decisions are made and issued, and an absence of excessive documentary and inspection requirements and delays (FIAS, 2006). Efficiency is important in all interactions between businesses and governments but its lack is often felt most acutely in matters of tax and customs administration, where delays can be especially costly to enterprises (FIAS, 1999).
Currently, it is common that one can learn that the laws and regulations governing FDI in some country have been changed to make them more welcoming (consistency, efficiency and transparency), that another investment promotion agency (IPA) has been
3 | 126 Administrative Barriers Encountered in South Africa by Foreign Investors set up, and that FDI into some country has broken another record (The Economist, 2011). At the same time, however, one can also discover that a cross-border merger and acquisition (M&A) is being questioned or blocked, a contract between a multinational corporation (MNC) and a host country is being renegotiated or cancelled, or laws and regulations are being introduced that make the business environment less hospitable for FDI (The Economist, 2011).
FDI has had a positive impact on South Africa, especially in political and humanitarian aid and also in key sectors such as automobile telecommunications, banking and mining, and has played a key role in boosting exports, and facilitating growth and employment (World Bank, 2010). FDI provides capital, allows for technology and skills transfer, and binds South Africa more closely to the global economy (UN, 2003).
The inflow of foreign funds can help overcome the deficient investment-saving gap, thus enabling the host country to grow faster without sacrificing current consumption according to the Deutsche Bundes Bank‘s International Relations Department (2003). Such foreign funds can provide the basis not only for large and rapid gains in productivity and growth, but also for the formation of new businesses and even new industries in the host country (Shapiro, 2011). It is for this reason that the South African government has, over the past decade, put considerable efforts into improving the country‘s investment climate (UN, 2003).
Foreign direct investment plays a vital role in bridging the gap between domestic savings and investments and bringing the latest technology and management know-how from developed countries. According to Mottaleb (2007), foreign direct investment can also play an important role in achieving rapid economic growth in developing countries. Similarly, Vong (2006) emphasises the fact that the benefits of foreign direct investment to both host and investor economies are generally recognised and that there is a wide demand for reducing or eliminating barriers to global foreign direct investment integration.
Globalisation is creating intense business pressures (such as increase use of technology, regulatory frameworks) and Capital market changes and for many companies the quest to survive and prosper in the global market has become the paramount strategic driver of the accelerating boom in cross-border mergers and
4 | 126 Administrative Barriers Encountered in South Africa by Foreign Investors acquisitions (M&A), according to the World Investment Report (2003). Cross-border mergers and acquisitions is the combination of two or more companies that may or may not belong to the same legal entity in order to achieve strategic and financial objectives (World Bank, 2010). Companies involved in the operation may come from different economic sectors.
The internationalisation of businesses has assumed two new features. Firstly, businesses are increasingly entering foreign markets by acquiring a local producer (acquisition) instead of opening a new subsidiary (greenfield investment) (Grünfeld & Sanna-Randaccio, 2005). The acquisition of foreign direct investment occurs when one business purchases another, thereby becoming the new owner (UN, 2003, 2005). Greenfield investment involves the creation of a subsidiary from scratch by one or more non-resident investors (Bertrand, 2004).
The South African economy has achieved substantial success in the area of macroeconomic stabilisation in the post-apartheid era (Ndikumana, 2005), as shown by its monetary policy and investment incentives. However, this economic stabilisation has not alleviated poverty and the country fails to produce the growth rates required to raise the living standards of the majority of the population (Ndikumana, 2005). Dahl (2002) pointed out that South Africa was one of the emerging economies that are marred by excessive bureaucracy and suffer from a lack of administrative process that are consistent, efficient and transparent. There is a huge level of unemployment in South Africa and the majority of the population still depends on state subsidies (ABSA Capital, 2010).
There are many other important macro- and microeconomic factors affecting FDI decisions. The desire to ignite economic growth led the South African government to undertake a series of important economic reforms instituted by the post-apartheid government that undertook these reforms, The macroeconomic but socio-economic reforms policies introduced by the government included the Accelerated and Shared Growth Initiative for South Africa (AsgiSA), launched by then deputy president Ms Phumzile Mlambo-Ngcuka in February 2006. AsgiSA identified some binding constraints which were preventing South Africa from achieving the desired growth rate of between 3 and 5%, including: (1) barriers to entry, which limit competition and new investment
5 | 126 Administrative Barriers Encountered in South Africa by Foreign Investors opportunities in the country; (2) the regulatory environment and the burden on small and medium enterprises (SMEs) and (3) deficiencies in state organisation, including lack of capacity and leadership (South African Government Information, 2006).
More importantly, the government introduced a fundamental policy to assist in profiling the country and increase its economic performance the Expanded Public Works Programme (EPWP). The EPWP‘s main aim was to improve the delivery of public and social services. The Growth, Employment and Redistribution Programme (GEAR) plan is a macroeconomic policy geared towards deficit reduction and a tight monetary policy, combined with trade liberalisation (South African Government Information, 2006).
Other policies and reforms include South Africa‘s adoption of the General Agreement on Tariffs and Trade (GATT) in 1999 by becoming a signatory bounded by the guidelines of the treaty. The role of GATT in integrating developing countries into an open multilateral trading system is also of a major consequence to FDI (United Nations, 2009). Further policies and reforms include the Joint Initiative for Priority Skills Acquisition (JIPSA), which focuses on scarce and critical skills, the Development and Cooperation Agreement (DCA) between South Africa, the European Union (EU), China and India (South African government, 2006).
According to a report by the Foreign Investment Advisory Service (FIAS) (1999), foreign direct investment is subjected to different barriers in developing countries (the developing nations of Africa, Asia and Latin America, generally less economically advanced than industrialised nations but with varied economies). According to the World Bank (2009), these barriers include: the exclusion of foreign investors from certain economic activities; quantitative limitations in the form of quotas or economic needs tests; caps on foreign ownership; limitations on the type of establishment (subsidiary or branch); joint venture requirements and discriminatory treatment (e.g. as regards taxation and other forms of state intervention).
According to Shapiro (2011), the legal and regulatory requirements for establishing and operating a business can matter greatly to the success of the business. More generally, the stability of a country‘s administrative procedures that may affect investments is an important issue for foreign direct investors. In that context, the reliability of the rule of law in a country, and how strictly and efficiently the laws are.
6 | 126 Administrative Barriers Encountered in South Africa by Foreign Investors
The World Bank (2009) referred to the causes of administrative barriers as actions that emanate from inconsistence of procedures and regulations that result in duplications of excessively bureaucratic regulations or cumbersome, non-transparent regulations. According to FIAS (1999), potential investors consider the transparency, consistency and efficiency of their probable interactions with national and local governments to be the most important criteria in evaluating the business climate in a given location.
Morisset and Neso (2002) identified three key types of administrative barriers that may be confronted by foreign investors: barriers that are associated with the registration of a company, securing investment permits or operational permits and sectoral business licensing, as well as barriers that relate to the dissolution of an organisation.
Drabek and Payne (2001) noted that the extent of the host country's tariff and non-tariff barriers, import and export limitations and licensing requirements can have a direct bearing on foreign direct investors‘ ability to pursue economic goals, and present roadblocks that limit international trade and restrict the flow of foreign investment. Similarly, Globerman and Shapiro (2003) pointed out that governance infrastructure is an important direct determinant of location choice for American investors.
Although many governments have by now removed many barriers to investment and have deregulated and liberalised investment processes, this process appears to be slow in many other countries. Morisset and Neso (2002) argue that the recent international experience of foreign direct investment has shown that if the administrative procedures required to establish and operate a business are unnecessarily complex, foreign direct investment is discouraged.
Consequently, a study conducted by the Organisation for Economic Co-operation and Development (OECD) (2003) determined that the cumulative effect of too many regulations and formalities coming from multiple institutions and layers of government slows down the responsiveness of foreign direct investors. These processes are in most cases not transparent; as a result, administrative barriers are created (OECD, 2003).
According to Suhir and Kovach (2003), well-designed regulations can have beneficial effects on businesses through the setting-up of market frameworks and systems in which commercial transactions can take place in a pro-competitive and low-cost environment.
7 | 126 Administrative Barriers Encountered in South Africa by Foreign Investors
There is a risk, however, that badly designed administrative regulations can impede innovation, create unnecessary barriers to trade, investment and economic efficiency, and even threaten competition and the legitimacy of the regulations themselves (OECD, 2003).
The cumulative effect of too many regulations and formalities coming from multiple institutions and layers of government is to slow down business responsiveness, divert resources away from productive investments, hamper entry into markets, reduce innovation and job creation and generally discourage entrepreneurship (OECD, 2003). At worst, it invites corruption and cronyism (Foreign Investment Advisory Service, 1999). Suhir and Kovach (2003) argue that regulatory and licensing barriers are the continuation of a ―system of permissions‖ whereby approval must be obtained from the authorities to embark on even the smallest tasks.
According to the Foreign Investment Advisory Service (1999), administrative barriers to foreign direct investment are due to the maintenance of overly complex registration procedures combined with a lack of institutional capacity. This often translates into a situation in which these procedural tasks become major obstacles to investments. These difficulties can be overcome only by extraordinary payments or long delays; this becomes a serious deterrent to potential investors who may have an interest in the economy (FIAS, 1999).
1.2 Problem statement Administrative requirements for establishing, operating and locating a business can matter greatly, and the past two decades have seen widespread liberalisation of these requirements by many nations according to Shapiro (2011). More generally, foreign direct investment processes that are not consistent, efficient and transparent generally interfere with the operation of free markets and will not only change market outcomes and benefit levels of FDI to the host country in general, but will in most cases imply that additional administrative processes are imposed upon foreign investors (UN, 2003).
The recent South African experience has shown that administrative processes that are not consistent, efficient and transparent can discourage inward foreign direct investment by taking away competitive advantage. This scenario was recently played out during the
8 | 126 Administrative Barriers Encountered in South Africa by Foreign Investors
Wal-Mart and Massmart merger. The foreign direct investment transaction was one of the biggest South African foreign direct investments in the retail sector (South African press agencies (SAPA, 2011). The deal finally received the official stamp of approval in June 2011, after eight months of deliberations by the Competition Commission. Wal-Mart nearly walked away from this deal, citing excessive administrative process and delays (SAPA, 2011).
Wal-Mart was not the first multinational corporation that invested in South Africa to be faced with a salvo of administrative barriers. A string of other high-profile deals have floundered due to administrative constraints. For example, In 2009 India's biggest cell phone company, Bharti Airtel Limited, failed to reach an agreement to buy a stake in the South African telecom MTN Group Limited, also citing processes that were not consistent, efficient and transparent. Consequently, the Fraser Institute‘s Annual Survey of Mining Companies 2010/2011 placed South Africa amongst those nations struggling with high uncertainties concerning the administration, interpretation, and enforcement of existing mining regulations (McMahon & Cervantes, 2011).
Although South Africa introduced various measures aimed at attracting inward foreign direct investment, the area of administrative barriers to FDI receives little or no attention. This necessitates probing into what South Africa needs to do to remove or ease administrative processes relating to FDI. De Soto (1999) referred to the costly effects of administrative procedures which hinder the country‘s ability to raise barriers to market entry for new businesses, investors, products, and services. Foreign investors are among those hardest hit by administrative processes that are not consistent, efficient and transparent put (Jacobs & Coolidge, 2006).
The primary objective of this study is to determine how consistent, efficient and transparent are administrative processes that are encountered by investors in South Africa with specific reference to start-up, operating or reporting and locating processes. The second objective of the study is to propose solutions aimed at improving the levels of consistency, transparency and efficiency of administrative processes in order to easy, simplify or mitigate the burden of these processes on foreign direct investors in South Africa.
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1.3 Objectives of the study Many foreign direct investors frequently find themselves stuck or in situations characterised with delays as they enter the South African economy. This might seem paradoxical in light of many government policy statements about the need to attract FDI in the country. However, a friendly investment climate demands processes that are consistent, efficient and transparent (World Bank, 2010). The factors driving investment decisions by multinational corporations are changing; when seeking business opportunities, companies are now more concerned about financial and political risks, with a focus on stable and predictable business environments. There has been very little literature on the consistency, efficiency and transparency of administrative barriers to FDI from the South African perspective. This study is based on the assumption that start-up, operating and locating processes for foreign direct investment are not consistent, efficient and transparent in South Africa.
The main objective of this study is to identify administrative barriers encountered in South Africa by foreign investors. The study will determine how consistent, efficient and transparent of administrative processes that are encountered by foreign investors in South Africa with specific reference to start-up, operating or reporting and locating processes. The study aims to help key players involved in foreign direct investment propose solutions aimed at improving the levels of consistency, transparency and efficiency of administrative processes in order to easy, simplify or mitigate the burden of these processes on foreign investors in South Africa. Moreover, the study will provide a source of information, which can help start the debate on how to eliminate or alleviate the burden caused by these barriers.
The specific aims of the study are to:
Identify administrative barriers to be overcome by South Africa;
Ascertain the level of consistency, efficiency and transparency of administrative processes in South Africa; and
Propose solutions aimed at improving the levels of consistency, transparency and efficiency of administrative processes in order to easy, simplify or mitigate the burden of these processes on foreign direct investors in South Africa.
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1.4 Research questions and hypothesis
The hypothesis to be tested in this study is the level of consistency, transparency and efficiency of start-up, operating and locating processes to foreign direct investment in South Africa.
Null Hypotheses (Ho): Administrative processes are consistent, efficient and
transparent in South Arica. If this assumption holds (Ho) the hypothesis is not rejected.
Alternative Hypothesis (Ha): Administrative processes are not consistent, efficient and
transparent in South Africa. This hypothesis (Ha) is designed to negate the main hypothesis by validating the assumption.
In attempting to ascertain the levels of consistency, efficiency and transparency of administrative processes relating to foreign direct investment in South Africa, the study‘s approach is to test the hypothesis. The aim of the study is to verify the level of consistency, transparency and efficiency of start-up, operating and locating processes relating to foreign direct investment in South Africa.
1.5 The significance of the study
Theoretically, foreign investors are likely to invest in countries where administrative processes are consistent, efficient and transparent (OECD, 2003). Therefore, the thriving development of a country depends largely on private and public initiatives including that of attracting inward foreign direct investment. The Foreign Investment Advisory Service of South Africa (1999) has described the paradox of countries that fight for investment, but ―when someone has finally made the decision to invest, then the investor is subjected to some of the worst administrative barriers in South Africa. Such administrative barriers to entry condemn millions of entrepreneurs and reduce investment into the country (Jacobs & Coolidge, 2006).
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Although South Africa has already done much to create a more business-friendly environment to promote local investment as well as foreign direct investment, and has made impressive progress towards political and economic stability in an effort to increase economic activity, the authorities have failed to scale down administrative obstacles caused by the country‘s administrative processes (World Bank, 2010). Furthermore, few studies regarding the topic of administrative barriers to foreign direct investment in South Africa are available. Therefore, this study is significant to the field of foreign direct investment as it will help identify the main administrative barriers that are faced by foreign investors when they invest in South Africa. In addition, the study will extend the limited knowledge base that currently exists and will shed light on the intricacies of administrative procedures that are faced by foreign direct investors in the country.
The need to increase foreign direct investment in South Africa is evidenced by the fact that the country is facing high levels of unemployment and poverty, and low levels of development by the private sector (UN, 2003). Foreign direct investment allows the transfer of technology; profits generated by foreign investment contribute to corporate tax revenues in the host country, help create jobs in the host country and contribute to the development of the host economy in general (Tambunan, 2008), all of which South Africa desperately needs. This study aims to identify bottlenecks that are caused by administrative processes and are responsible for delays. The study will further attempt to make recommendations for the removal and streamlining of some of these processes.
Although there is a growing body of research on business environments and investment climates, studies such as the World Bank‘s Doing Business reports and the FIAS investment climate reviews have focused attention on the importance of creating environments conducive to development. These and others studies have focused on issues that affect foreign direct investment in general; there have been few specific reviews of administrative barriers to FDI.
1.6 Delimitations
Foreign investors referred to in this study have already made direct investments in South Africa. The selection of foreign investors is based on information provided by Business Monitor International in the 2010 edition of the Foreign Companies Directory.
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1.7 Study chapters discussion
Chapter 2 reviews the theoretical framework of this study, Dunning‘s Eclectic Paradigm (OLI), the impact of FDI on the host country, and administrative process in South Africa for FDI.
Chapter 3 presents the research process as well as the data analysis process of the study. It discusses and explains the advantages and the disadvantages of the method used and why the method was found to best suit for this study. Finally, ethical considerations are discussed and an undertaking by the researcher is given.
Chapter 4 presents the empirical findings, interpretation and analytical results, with the purpose of detecting possible patterns.
Chapter 5 concludes the main results in order to verify whether or not the purpose of the study has been accomplished. The chapter also discusses the validity and reliability of the study based on the methodological choices made for both the research and the data analysis process. Possible areas for future research will also be recommended.
1.8 Chapter summary
This chapter provided an introduction to globalisation, a concept that is associated with foreign direct investment movements. Globalisation was presented as a dynamic process of liberalisation, openness and international integration across a wide range of markets, from labour to goods and from services to capital and technology. The chapter highlighted the benefits of foreign direct investment to the host country, which include the provision of foreign capital, technology, management know-how. Administrative barriers to foreign direct investment and what causes them were also discussed. The following were presented in the chapter: research questions, problem discussion and the purpose, significance and delimitation of the study.
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CHAPTER 2: LITERATURE REVIEW
2.1 Introduction
Since 1994, the South African government has been making strenuous efforts through institutionalisation and legal frameworks, forums, and promotional campaigns, to encourage foreign direct investment inflows (World Bank, 2010). The driving force for requiring FDI is embedded in the econometric modelling exercise that underpinned the South African government‘s Macroeconomic Strategy on Growth, Employment and Redistribution (GEAR), which, according to the World Bank (2003) suggests that a gross investment rate of the order of 26% of GDP is required to raise the GDP growth rate to 6% per annum.
South Africa views the role of foreign direct investment as crucial to its development (Ngowi, 2001). FDI is regarded as an engine of growth as it provides much-needed capital for investment, increases competition in the host country industries, and aids local businesses to become more productive by adopting more efficient technology or by investing in human and/or physical capital (Gorg & Greenaway, 2004).
As a result of the potential role of foreign direct investment of accelerating growth and economic transformation, South Africa seeks such investments to accelerate its development efforts (Ajayi, 2006). Consequently, South Africa competes in a challenging and competitive global marketplace for foreign investment which requires administrative processes that are consistent, efficient and transparent (Gorg & Greenaway, 2004).
A country‘s ability to grow its economy can be seriously hindered by an array of factors other than conventional business challenges such as the social, cultural and political climates that differ greatly between different departments of the government (Deloitte, 2010). Even in countries that have addressed constraints to inward foreign direct investment have a problem of administrative barriers that are caused by processes that are not consistent, efficient and transparent (Emery et al. 2000).
The institutional environment, which includes administrative processes, is an important factor because it directly affects business registration, operation and locating. The consistency, efficiency and transparency of the institutional environment (administrative
14 | 126 Administrative Barriers Encountered in South Africa by Foreign Investors processes) in this regard can promote or deter investment (Ajayi, 2006). In most cases, administrative barriers are also accompanied by corruption and bribery (Emery, et al: 1999). Corruption deters the inflow of FDI as it creates uncertainty and adds additional cost to investing (UN, 2003).
2.2 A brief history of foreign direct investment
2.2.1 FDI in Europe and America
Ever-intensifying foreign trade relations and international financial relations over the past decades have made national economies even more integrated (Daniels & Radebaugh, 1998). An important aspect of international economic integration was the concept of foreign direct investment (Ogunkola & Jerome, 2004). Foreign direct investment is a key driver of international economic integration and with the right policy framework; FDI can provide financial stability, promote economic development and enhance the well being of societies (OECD, 2008).
The birth of FDI was in early 2500 BC when Sumerian merchants found in their foreign commerce that they needed men stationed abroad to receive, store and sell their goods (Rugman & Brewer, 2001). The most prominent organisation to pioneer the concept of foreign investment was the East India Company (Lipsey, 2001).
In the 1600s, the East India Company started establishing branches outside the United Kingdom, a form of foreign direct investment (Rugman & Brewer, 2001). Following the footsteps of the East Indian Company, during the mid-seventeenth century French and Dutch mercantile families sent relatives to America and to the West Indies to represent their companies (Kwan & Harrigan, 2003). In the 1800s, American colonists found in their own foreign trade that it was desirable to have business operations outside their country to sell American products and services and started establishing business operations outside the country (Lipsey, 2001).
Wilkins (1989) stated that between 1875 and 1914 America was ―the greatest debtor nation in history‖ despite its rise as one of the major lender countries in the international
15 | 126 Administrative Barriers Encountered in South Africa by Foreign Investors capital market at the end of this period. It was only in the late 19th century that the Americans become a leading player in the foreign direct investment arena.
Foreign investment declined in the interwar period of the twentieth century as most countries concentrated on an arms race (Nocke & Yeaple, 2004). During this period, too, Britain lost its status as a major world creditor, and the United States of America emerged as a major economic and financial power (Moosa, 2002). While America was still a net importer of capital, the country became the dominant provider of direct investment to the rest of the world, accounting for about three-quarters of the world‘s stock (including reinvested profits) between 1945 and 1960 (Moosa, 2002). It was only after the Second World War that foreign direct investment acquired a prominent role in the international economy.
In the current decade, the importance of foreign direct investment in the global economy has grown, accounting for over twenty percent of the global gross domestic product (GDP) (Kearney, 2005). GDP is the monetary value of all the finished goods and services produced within a country‘s borders in a specific time period and are commonly used as an indicator of a country‘s economic health and standard of living (The Economist, 2010). In the last 20 years, emerging market countries such as Brazil, China, India, South Africa and Russia have become the most favoured destinations for foreign direct investment and investor confidence in these countries has soared (The Economist, 2010).
2.2.2 FDI in South Africa
The Portuguese were the first Europeans to reach the Cape of Good Hope, arriving in 1488. However, permanent white settlement did not begin until 1652 when the Dutch East India Company established a provisioning station on the Cape and this was the birth of FDI in South Africa (Estrin & Meyer, 2004). Foreign enterprises have been present in South Africa since Britain established a colony early in the 19th century. In subsequent decades, French Huguenot refugees, the Dutch, and Germans began to settle in the Cape (Estrin & Meyer, 2004). The establishment of these settlements had far-reaching social, political and economic effects on the groups already settled in the area, leading to an upheaval in those societies and the subjugation of their people. Until
16 | 126 Administrative Barriers Encountered in South Africa by Foreign Investors the 1870s, the South African economy focused on agricultural exports to Europe, but the financial system was dominated by branches of London-based banks (Estrin & Meyer, 2004).
2.3 Factors driving FDI inflow into South Africa
There are many theoretical studies that examine FDI factors; the main studies on the motivations underlying FDI were developed by J. Dunning, S. Hymer and R.Vernon (Denisia, 2010). Economists believe that FDI is an important element of economic development in all countries, especially in the developing ones (Nunnenkamp, 2001).
According to the ―eclectic‖ theory of FDI, countries that have a ―locational advantage‖ will attract more FDI (Dunning, 1993). Location-specific advantage embodies any characteristic (economic, institutional and political, processes) that makes a country attractive for FDI (Dunning, 1993). Where domestic resources to finance investment are limited, foreign capital inflows are necessary (UN, 2003).
Similarly, according to the OLI paradigm proposed by Dunning (1993), a company becomes multinational mainly for three reasons: ownership advantages, location-specific advantages and internalisation. Companies endowed with ownership advantages or intangible assets expand operations abroad to internalise the benefits arising from ownership advantages and to match their strengths with location-specific comparative advantages (Dunning, 1993).
Location-specific advantage can be extended to include the ease of doing business. This study focuses on the consistency, efficiency and transparency of administrative process to FDI of the host country, which are considered to be location-specific advantages of the host country with respect to the ease of doing business. Location-specific advantages are further classified by three types of motives for FDI according to Dunning (1993). The major motives identified by Basu and Srinivasan (2002) that have particular relevance to South Africa are: market-seeking, natural-resource seeking and efficiency seeking.
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2.3.1 Market-seeking
Market-seeking investment is undertaken to sustain existing markets or to exploit new markets (Dunning, 1993). For example, due to tariffs and other forms of barriers, a firm has to relocate production to a host country that it had previously served by exporting. Because the reason for this type of investment is to better serve a local market by local production, market size and market growth of the host economy are the main factors that encourage market-seeking FDI (Kudina & Jakubiak, 2008).
2.3.2 Natural-resource-seeking
Resource- or asset-seeking investment happens when companies invest abroad to acquire resources not available in their home country (Dunning 1993). Resources may be natural resources, raw materials, or low-cost inputs such as labour. The availability of natural resources, cheap unskilled or semi-skilled labour, creative assets and physical infrastructure promote resource-seeking activities (Kudina & Jakubiak, 2008). Multinational enterprises that are mostly in the manufacturing and service sectors from countries with high real labour costs undertake this type of foreign investment with the aim of seeking cheap labour (Dunning, 1993). South Africa has an abundance of these natural resources and also cheap labour (DTI, 2011).
Examples of resources-seeking with respect to cheap labour are the investments made by Germany (BMW), the US (General Motors) and Japan (Toyota) in the assembly of automobiles in South Africa. Unlike market-seeking FDI, this type of FDI is intended to serve not only the local market but also the home and third-country markets (Dunning, 1993).
2.3.3 Efficiency-seeking
Efficiency-seeking is an investment which aims to take advantage of special features in a certain area such as the cost of labour, the skills of the labour force, and the quality and efficiency of infrastructure (Cavusgil et al. 2008). New markets provide an opportunity for companies to stay competitive and grow within the industry as well as achieve economies of scale and scope (Cavusgil et al. 2008). According to Kudina and Jakubiak
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(2008), a credit card company opening a call centre in India to serve South African customers is a form of efficiency-seeking foreign direct investment.
2.4 The impact of FDI on South Africa
There are two competing schools of thought regarding the impact of foreign direct investment on the host country. The first school of thought supports the notion that foreign direct investment has a positive impact on the host country as it encourages domestic investment, increases trade, helps with technology transfer, increases competition, assists with the upgrading of human capital and helps to grow the economy (Cotton & Ramachandran, 2001). The second school of thought is modelled on the argument that foreign direct investment has a negative impact to the host country as it stifles the market, brings with it the exploitation of workers, and encourages the repatriation of foreign currency (Mišun & Tomšík, 2002; Adewumi, 2006; Ndikumana & Verick, 2008; Sharpe & Banerjee, 2008).
2.4.1 The positive implications of FDI for South Africa
The contribution of foreign direct investment to economic growth has been debated quite extensively in the literature (Loungani & Razin, 2001; Ram & Zhang, 2002). Proponents of foreign direct investment like Ngowi (2001); Nunnenkamp (2001); Todaro (2002); Makki and Somwaru (2004) all support the argument that foreign direct investment is vital to any country‘s development. Economic theories by Nair-Reichert and Weinhold (2001) and Ram and Zhang (2002) further suggest that foreign direct investment can contribute positively to the recipient economy‘s growth.
2.4.1.1 Economic growth
South Africa is in direct competition with other dynamic emerging economies, particularly China, India and Brazil. The relationship between foreign direct investment and domestic investment in developing countries becomes positive when foreign direct investment stimulates or crowds-in domestic investment (Makki & Somwaru, 2004). South Africa requires more foreign direct investment in order to achieve its economic growth path. The primary opportunity facing South Africa is its vast untapped mineral resources (UN, 2003). Lipsey (1999) pointed to the most obvious effect of FDI on the growth potential of
19 | 126 Administrative Barriers Encountered in South Africa by Foreign Investors host country being the provision of additional capital: the inflow of foreign funds can help overcome the pervasive investment-saving gap, thus enabling the country to grow faster without sacrificing its current consumption.
Foreign capital can fill the domestic resource gap, namely, the gap between national investment and savings (Kim & Rajapakse, 2001). This is more prevalent in some African countries where domestic savings rates are very low, thereby making it difficult to finance investment projects needed for accelerated growth and development (Morrisset & Neso, 2000). Openness to foreign direct investment enhances international trade thereby contributing to the integration of the host country into the world economy (Morrisset & Neso 2000).
Furthermore, the liquidity of stock markets is increased if foreign investors choose to purchase existing equities of the local firm as part of the investment (Klingebiel & Schmuckler, 2002). Another area in which FDI can positively affect the growth of the economy is through endowing host companies with more efficient technology and management techniques (Deutsche Bundes Bank, 2003).
2.4.1.2 Technology transfer
Foreign direct investment is generally considered a source of modern technology in a broad sense, including product, process and distribution expertise as well as management and marketing skills (Gugler & Brunner, 2007). Moosa (2002) points out that the interaction between technology and foreign direct investment is considered vitally important in the field of foreign direct investment. The simple idea is that inflows of foreign direct investment always come with advanced technologies used by foreign investors (Atik, Tran & Vieyra, 2008; Carkovic & Levine, 2002).
Blomstrom and Kokko (2003) conducted a survey of the literature on foreign direct investment and technology transfer as critical to the recipient country. The results showed that the flow of foreign direct investment helps to enhance efficiency; however, advanced technologies can increase the growth rate of the host economy only by interacting with that country's absorptive capability. Foreign direct investment helps introduce modern technologies to the host country (Alfaro et al. 2004, Morrisset, 2000). Foreign expertise can be an important factor in upgrading the host country‘s existing
20 | 126 Administrative Barriers Encountered in South Africa by Foreign Investors technical processes (Alfaro, Chanda, Kalemli-Ozcan & Sayek, 2004). For example, the civilian nuclear deal between India and the United States would lead to the transfer of nuclear energy know-how between the two countries and allow India to upgrade its civilian nuclear facilities (Blomström & Kokko, 2003).
2.4.1.3 Increased competition
As foreign direct investment brings with it advances in technology and processes, it increases the level of competition in the domestic economy of the developing country which has attracted the foreign direct investment (Nunnenkamp, 2001). Other companies will also have to improve their processes and products in order to stay competitive in the market. Overall, foreign direct investment improves the quality of products and processes in a particular sector (Morrisset, 2000).
2.4.1.4 Upgrading of human capital through job creation
The most important factor for South Africa for shifting poor people out of poverty is access to employment; insufficient job opportunities are the result of inadequate levels of investment, both foreign and local (Jenkins & Knight, 2002). There is general consensus in the literature that foreign direct investment has a positive effect on human capital. According to Narula and Marin (2003), the upgrading of human capital is a consequence of and a complement to technology transfer. Employees of a host country in which there is foreign direct investment get exposure to globally valued skills; training and skills upgrading can enhance the value of the human resources of the host country (Alfaro et al. 2004).
Foreign direct investment also contributes to employment generation and economic growth by providing additional capital to a host country and indirectly through increased linkages with domestic companies (Dupasquier & Osakwe, 2005).
2.4.2 The negative implications of FDI for South Africa
A substantial body of literature has also grown around the question of how inward foreign direct investment negatively affects host countries (Mišun & Tomšík, 2002, Adewumi, 2006, Ndikumana & Verick, 2008; Sharpe & Banerjee, 2008). Those who criticise foreign direct investment point out that it does not promote faster growth but may in fact retard it
21 | 126 Administrative Barriers Encountered in South Africa by Foreign Investors by substituting inferior products and services for quality ones (Mišun & Tomšík, 2002, Ayanwale, 2007).
2.4.2.1 Exploitation of workers
As stated by ILO (1998), multinational enterprises may exploit workers in the host country. Examples of organisations that have been accused of exploitation of workers include Nike and Reebok in China, where it is claimed that they pay workers below minimum wage (ILO,1998). It has been found that these companies use child labour, have unhealthy working conditions and mostly dismiss workers unfairly (ILO, 1998).
According to the ILO report of 1998, Nestlé was found to be buying cocoa from farmers in the Ivory Coast where enslaved children from Benin, Burkina Faso, Mali and Togo are used as labourers. Another example of worker exploitation by a foreign company is that of Shell in Nigeria (ILO, 1998). In South Africa, workers are alleged to be exploited by mining companies (COSATU, 2009).
2.4.2.2 Drain of foreign exchange
Foreign exchange drain caused by the repatriation of profits by foreign companies may induce a net outflow of foreign exchange if production serves mainly the host country market (Akinlo, 2004). Profits from production do not feed back into the local economy but into the multinational's home economy (Mehmed & Osmani, 2004). This is in favour to local industries whose profits flow back into the domestic economy to promote growth. In this case, currency outflow cannot be offset by increasing export revenues, as in the case of export-oriented foreign direct investment.
2.4.2.3 Risk of foreign monopoly
Risk of foreign monopoly is a real threat to the host country as some multinational enterprises are larger and more powerful than the countries they invest in (The Economist, 2010). This poses a risk of foreign monopoly power (the case of Poland in the early 1980s, Chile in the 1970s). An example is Apple Incorporation with a turnover that is higher than the South African GDP (The Economist, 2010).
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2.5 Macroeconomic environment
2.5.1 South Africa at a glance
Although the South African economy is in many areas highly developed and liberal, there are some weaknesses, partly because of the large number of authorities and processes involved to pass a decision or grant a permit to business; further, these processes are not consistent, efficient and transparent (IMF, 2009). The country could, then, be said to be in a state of development, as the government seeks to address and liberalise administrative processes to FDI.
South Africa is situated at the southern tip of Africa, forming part of the Southern Africa region, and is bordered by Namibia, Botswana, Zimbabwe, Mozambique and Swaziland (Guide for Africa, 2010). The Kingdom of Lesotho is situated within South Africa‘s borders. The country has nine provinces: Gauteng, Western Cape, Kwazulu Natal, Eastern Cape, Northern Cape, Limpopo, Mpumalanga, Free State and the North West (South African Government Information, 2010). Pretoria is the executive capital, Cape Town the legislative capital, Bloemfontein the judicial capital and Johannesburg the de facto economic capital. Other major cities include Durban, Port Elizabeth, Nelspruit and East London (International Marketing Council of South Africa, 2011).
South Africa is an emerging market with an abundant supply of natural resources; well- developed financial, legal, communications, energy, and transport sectors; the 18th largest stock exchange in the world; and modern infrastructure supporting an efficient distribution of goods to major urban centres throughout the region (International Marketing Council of South Africa, 2011).
The country has a two-tiered economy, one rivalling other developed countries and the other with only the most basic infrastructure. It is therefore a productive and industrialised economy that exhibits many of the characteristics associated with developing countries, including a division of labour between formal and informal sectors and an uneven distribution of wealth and income (International Marketing Council of South Africa, 2011).
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Mr Trevor Manuel, South African Minister in the Presidency in charge of the National Planning Commission and the country‘s former minister of finance, reiterated the fact that the South African government have taken some very tough decisions to provide a climate for certainty to foreign investors (International Marketing Council of SA, 2011). The country‘s constitution, legal framework and macroeconomic framework all add up to providing the certainty and predictability that investors need for foreign direct investment (International Marketing Council of South Africa, 2011).
The attraction of South Africa as an investment destination is due, in part, to its relatively stable political environment and adherence to the rule of law, constitutional democracy with a three-tier system of government, and an independent judiciary (Van der Linde, Scholtz, Movshovich, Clerk & Kruger, 2010).
South African industrial development was initiated by the discovery of major mineral deposits from the 1860s, first diamonds and later gold (Gelb & Black, 2002). According to Nowak (2005), during the apartheid era South Africa was subjected to economic sanctions and political isolation from the rest of the world. This resulted in the collapse of foreign investment and economic growth, with the outcome of high inflation and interest rates.
South Africa is the economic powerhouse of Africa, with a GDP four times that of its southern African neighbours and comprising around 25% of the entire continent's GDP (South Africa Department of Trade and Industry, 2010). GDP is one of the primary indicators used to gauge the health of a country's economy.
South Africa opened up its economy to the world in 1994, following the fall of apartheid rule. The country now enjoys fairly high levels of business freedom, fiscal freedom, monetary freedom, freedom from government and financial freedom (Department of Trade and Industry South Africa, 2008). According to Gelb and Black (2002), foreign direct investment activities have a long and complex history in South Africa: for example, the establishment of Anglo American, Barclays Bank and the British American Tobacco company. Foreign enterprises have been present in South Africa since Britain established a colony early in the 19th century. Until the 1870s, the South African economy focused on agricultural exports to Europe, but the financial system was dominated by branches of London-based banks (Estrin & Meyer, 2004).
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South Africa is amongst the world leaders in mining and the country is internationally renowned for an abundance of mineral resources, accounting for a significant proportion of both world production and reserves according to Estrin and Meyer, 2004) research. South African mining companies dominate many sectors in the global industry and other major industries include textile, chemicals, financial services, transport, storage and communication (Estrin & Meyer, 2004).
The country‘s financial system is the most developed in Africa; however, investment freedom, property rights and freedom from corruption could be improved (Heritage Foundation, 2007). The judicial system is slow, primarily because of understaffing and inefficiency as well as political interferences (Heritage Foundation, 2007). Race laws and unclear regulation hamper foreign investment, but the legal environment is free from political interference and the threat of expropriation (Heritage Foundation, 2007).
Makola (2003) added that South Africa's role as an emerging market which can compete comparatively with some of the emerging markets (Brazil, China, India and Russia) and can act as a credible connector to the 1-billion consumers on the continent is the major attraction of the country.
2.5.2 Immigration
South Africa‘s immigration system is regulated by the Immigration Act. This Act ensures that access to foreigners is granted in order to promote economic growth, while at the same time ensuring that security considerations are fully satisfied (Department of Home Affairs South Africa, 2011). The Immigration Act specifically provides for foreigners intending to establish or invest in, or who have established or invested in, a business in South Africa. This Act sets out the categories of permits available - there are three basic components to the South African system: visas, temporary residence permits and permanent residence permits (Department of Home Affairs South africa, 2011).
2.5.3 Law
South African law is founded on Roman Dutch law although some aspects of the laws (particularly the company laws and the law of evidence) have been heavily influenced by
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English law (Deloitte, 2011), General commercial legal practices relating to transactions and the drafting of commercial agreements are generally globally applicable and in line with developed countries (Department of Trade and Industry, 2011).There is a world- class and modern constitution (including a bill of rights) in place which regulates human rights and all legislation (Department of Justice, 2011 There are a number of legal restrictive and protective rules that affect doing business in South Africa (Department of Justice, 2011). Trade and industry is undertaken within the framework of a free enterprise economy (Deloitte, 2011). The courts are open to foreigners on exactly the same terms and conditions as South African citizens, although many commercial disputes are resolved through arbitration by agreement between the parties (Deloitte, 2011).
2.5.4 Industrial Relations
Foreign employees working in South Africa for a South African employer are protected by South African employment laws (Deloitte, 2011). Trade unions are active in most industries and collective bargaining is regulated by the Labour Relations Act. Most collective bargaining occurs at employer level, but some industries are regulated by industry-level bargaining councils (COSATU, 2010). Termination of employment must be both substantively and procedurally fair as regulated by the Labour Relations Act. Minimum conditions of employment are regulated by the Basic Conditions of Employment Act (Department of Labour, 2011).
2.5.5 Foreign investment
Virtually all business activities are open to international investors, although in a few sectors ceilings have been placed on the permitted extent of foreign involvement, for example in the banking industry in which foreign equity investment is limited (World Bank, 2012). At present, foreign investments are treated in essentially the same way as domestic investments and receive national treatment for various investment incentives such as export initiative programmes, tax allowances, and trade regulations (TISA, 2011). The main difference in treatment between domestic and foreign investment is in
26 | 126 Administrative Barriers Encountered in South Africa by Foreign Investors terms of the local borrowing restrictions imposed by the Exchange Controls authorities (South African Reserve Bank, 2009).
The Broad Based Black Economic Empowerment (B-BBEE) process is a holistic one, including human resource development, the implementation of employment equity and enterprise development practices, preferential procurement, true and measurable, ownership, and management and control of enterprises and economic assets by black persons (Deloitte, 2011).
2.6 Investment climate
The Trade and Investment South Africa (TISA) agency works under the umbrella of the Department of Trade and Industry (DTI) and is the institution that promotes, facilitates and encourages FDI in South Africa (DTI, 2011). The South African government actively encourages investment in the national economy (DTI, 2011). The country is a member of the International Convention for the Settlement of Investment Disputes and also a member of the Multilateral Investment Guarantee Agency.
Figure 2.1: Investing Across Sectors in South Africa
Source: World Bank (2011)
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South Africa‘s FDI framework is largely non-prescriptive and liberal, with few provisions relating to foreign investors that do not apply equally to resident investors (DTI, 2011). Restrictions would usually relate to a particular Industry (table 2.1 above) (TISA, 2010). In banking, for example, a foreign bank establishing a South African branch may be required to employ a minimum number of local employees and maintain a minimum capital base of at least R1 million. Restrictions also exist regarding the ownership of immovable property by foreign companies (DTI, 2011). The investment code in South Africa requires registration of FDI (see figure 2.1) with the DTI, mainly in order to verify the minimum investments required by law (Deloitte, 2010).
An example is a mining company that requires a prospecting licence and environmental assessment satisfactory licence. Special authority is needed for oil and mineral prospecting through different government institutions (DTI, 2011). Other processes include registering a company, land and title transfer (locating process) and tax returns (operating process). South Africa‘s institutions can influence investment decisions because they directly affect business operating processes and can raise the economic costs of investment as well as non-economic costs such as bribery and time lost in dealing with national or local authorities (World Bank, 2010).
2.6.1 Brief review of doing business in South Africa
This section of the study focuses on the three main areas in the life cycle of a business, namely start-up, operating and reporting procedures, and locating procedures. The analysis will be done of the processes and legal steps that an entrepreneur or foreign investor must complete in order to incorporate and register a new company or FDI in South Africa.
The principal method of doing business in South Africa is by using a company (public or private) incorporated under the Companies Act 71 of 2008, personal liability company, partnership, sole proprietorship or external company (branch of a foreign company) (DTI, 2011).
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2.6.1.1 Starting a business
Start-up procedures are intertwined in the steps that an entrepreneur needs to follow to begin operating legally (Jacobs & Coolidge, 2006). According to Djankov et al. (2002), any investment projects and private sector activities will start with the establishment of a company. It is in these start-up procedures that administrative barriers are created (NEPAD-OECD Investment Initiative, 2005).
Start-up barriers are part of the start-up procedures and include the following: company registration; special registration for foreign investment; applying for investment incentives; licences for business operation from a number of departments and ministries; work and residence permits for expatriate staff; registration for tax; licences for imports and exports and clearances for environmental impact assessments (Emery et al. 2000).
According to the Doing Business Report (2012), business or investment registration in the simplest definition is limited to registering or incorporating a new entity with the registration office in order to create a legal entity. Figure 2.2 below shows the country score against other countries in terms of easy of starting a business in South Africa.
Figure 2.2: Starting a Foreign Business in South Africa
Source: World Bank (2011)
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Registration complexity involves following a number of steps that are typically required of all companies trying to establish a new business (Emery et al. 2000). Similarly, in research conducted by the United Nations Conference on Trade and Development (2004), a number of requirements imposed by governments were grouped into start-up procedures, making the apparently simple process of company registration a nightmare for investors in practice.
Problems of registration are exacerbated when foreign companies seek licences and fiscal incentives in priority industries and sectors (United Nations Conference on Trade and Development, 2004). In such cases, they have to submit a mountain of documentation (feasibility and proof of compliance with conditions) to a number of government departments (unnecessary duplication) that do not communicate with one another.
When permits and clearances are required at different tiers of government for obtaining land, starting construction and installing connections for major utilities, the complications multiply exponentially (United Nations Conference on Trade and Development, 2004). The nightmare of the registration experience was also supported by Bhuiyan (2003), whose study findings stressed the point that procedures for registration with different agencies can annoy entrepreneurs.
The formal registration of companies in South Africa follows several procedures and it is in these procedures that administrative barriers occur. The aim this section of the study is to shed light on the procedures of registering a company in South Africa and complying with the relevant regulations. The following procedures are based on the assumption that the company is a limited liability based in Johannesburg.
Procedure one: Lodge formation documentation with the Companies and Intellectual Property Commission (CIPC) for registration.
The new Companies Act 2008 of South Africa requires the following documents to be lodged:
Notice of Incorporation (CoR 14.1)
Memorandum of Incorporation (MOI) (CoR 15.1 A) If a proposed name is rejected, the company may still be registered and the registration number then becomes
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the name of the company at incorporation. An approved name may then be submitted later.
Procedure two: Open a bank account
In order to open a bank account, the applicant needs to have a proof of who the directors are, and the original company documents. This procedure always takes longer if the required documentation is not in order (Doing Business, 2012; TISA, 2010).
Procedure three: Register with the office of the local receiver of revenue (South African Revenue Service (SARS)) for income tax, VAT, and employee withholding tax (PAYE and SITE) (Doing Business, 2012; TISA, 2010).
A business with an annual taxable income of more than ZAR 1,000,000 needs to register for VAT. The application for the registration of VAT is done on a VAT101 form. The Companies and Intellectual Property Commission (CIPC) and the South African Revenue Service are linked electronically. Once a company is incorporated, the relevant South African Revenue Service office is advised and an income tax number is allocated to such entity (TISA, 2010). The company also has to register as an employer by means of an EMP 101e form that caters for the necessary registration of all the withholding taxes applicable to the taxpayer including PAYE (Pay As You Earn. i.e. employee tax) or SITE (Standard Income Tax on Employees, inclusive of employee tax) and UIF (Unemployment Insurance Fund) .
Procedure four: Register with the Department of Labour for Unemployment Insurance.
To register for unemployment insurance, the company submits U18 & U19 application forms at once. Once the application is approved, the Department of Labour issues a reference number (Doing Business 2012, TSA, 2010).
Procedure five: Register with the Commissioner according to the Compensation for Occupational Injuries and Diseases Act.
Registration forms can be obtained from the Department of Labour‘s Web site (www.labour.gov.za). Businesses do not have to wait for the approval of registration to start operations (TISA, 2010). The relevant form is a W.As.2, and written notification is
31 | 126 Administrative Barriers Encountered in South Africa by Foreign Investors sent to the company once the completed application has been examined. (Doing Business 2012; TISA, 2010).
2.6.1.2 Locating a business
Unlike start-up barriers, locating barriers are experienced during the locating process of a business or investment.
Once a foreign company has been established in a new market, it is likely require real estate for its operations. Administrative barriers to FDI often include difficulties associated with securing access to land (Muir & Shen, 2005). Therefore, the ability to access land or buildings with secure ownership rights, at transparent prices, and with limited restrictions can be critical to a foreign investor‘s decision on whether to invest in a new market (World Bank, 2012).
According to Jacobs and Coolidge (2006), locating procedures involve key aspects of site development including land allocation, registration, building permits, utility connections, inspections and occupancy permits. Typically businesses will seek locations that maximise revenues and minimise costs, for example, a location near raw materials, with access to transport, labour, and in many cases its target market (Campos & Kinoshita, 2002).
The statutory inhibition on land acquisitions and the provision of utility services for business purposes experienced in most countries means that separate licences have to be obtained by all companies from different levels of government for access to land, for construction and for the provision of each utility (in particular postal services, electricity, telecommunications, water, waste treatment and effluent disposal) (Jacobs & Coolidge, 2006).
Figure 2.1 below is a summary of procedures for dealing with construction permits in South Africa as part of locating procedures.
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Figure 2.1: Summary of procedures on construction permits in South Africa
Source: Doing Business database (2012, TISA, 2011) * Takes place simultaneously with another procedure
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2.6.1.3 Operating procedures
During operational stages, a business faces a different series of interactions with government agencies (Jacobs & Coolidge, 2006). These are typically regulations and controls on foreign trade, foreign exchange, labour and social security. These areas are often the source of licence or permit requirements that remain cumbersome in spite of overall liberalisation. Suhir and Kovach (2003) state that once an enterprise is registered and operational, administrative barriers are reinforced by constant inspections. These serve to exhaust the company‘s owner(s) and virtually facilitate the company‘s transition into the informal sector (Ajayi, 2006). Indeed, inspectors themselves openly hint that should bribes be paid from the start, everyone will be spared time and aggravation (Ajayi, 2006).
The Companies Act of 2008 (the Act) constitutes a new corporate law for South Africa. The Act requires companies to adhere to a number of measures to ensure transparency and accountability. Among others, all companies are required to: have at least one office in the Republic and to register the address of such office (or its principal office) with the registrar of companies commission; keep certain records in written or electronic form for a period of seven years; keep accurate and complete accounting records; prepare annual financial statements; submit an annual report, including a copy of its annual financial statements and any other prescribed information –.the content of this report will be prescribed in Regulations to the Act (Deloitte, 2010; TISA, 2011).
A number of statutory bodies are established to enforce the provisions of the Act (TISA, 2011).
i) Companies and Intellectual Property Commission
This commission is responsible for: • Monitoring proper compliance with this Act by companies and directors. • Receiving and investigating complaints concerning alleged contraventions of this Act. • Promoting the reliability of financial reports by investigating non-compliance with financial reporting standards. • Registering and de-registering companies, directors, business names and intellectual property rights.
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ii) Companies Tribunal
The Companies Tribunal is responsible for assisting in the resolution of disputes where any person applies to the Companies Tribunal for relief as an alternative to applying to a court. An arbitration decision by the Companies Tribunal is binding on the Commission or the Takeover Regulation Panel.
iii) Takeover Regulation Panel
The Takeover Regulation Panel is responsible for regulating fundamental transactions.
iv) Financial Reporting Standards Council
The Financial Reporting Standards Council is responsible for consulting with the Minister of Trade and Industry on regulations that establish financial reporting standards.
2.7 Administrative barriers
In this study, the terms administrative formalities, administrative processes, administrative barriers, and administrative procedures will be used interchangeably. Administrative barriers are procedural, regulatory or technological factors that obstruct or restrict the entry of new companies into an industry or market (Moriset & Neso, 2002). Globerman and Shapiro (2006) define administrative barriers to business as the effort, in time and money, required by businesses or investors to supply the government with mandatory information and acquire the same from governments, while, Jacobs and Coolidge (2007) refer to administrative regulations as information requirements enabling governments to exercise and implement other (substantive) policy functions, including monitoring compliance with such regulations.
A poor business environment is characterised by legal and institutional obstacles to business start-up and growth. These poor processes result from administrative obstacles. Administrative burdens have a strong cumulative effect on the business environment in general (Jacobs & Coolidge, 2007). Administrative barriers can also be expressed as a percentage of total entry cost as indicated by figure 2.2 according to Bannock (2002) as follows:
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Figure 2.2: Business entry costs as a percentage of GDP/Capita
Source: Bannock (2002)
Many factors influence investors to use their capital to expand their business in a certain country (Lowther & Silva-Leander, 2006). The key factor for investors, particularly those outside of extractive industries, is the country‘s business environment and there appears to be a general consensus that investors highly value low levels of corruption, sound commercial laws that are enforceable, transparency, and economic stability (Lowther & Silva-Leander, 2006).
According to the Organisation for Economic Co-operation and Development (2005), the persistence of administrative barriers to foreign investment, combined with a lack of institutional capacity in government agencies responsible for processing applications and monitoring businesses, often translates to a situation where mere procedural tasks become major obstacles to investment.
An investor-friendly environment can differentiate a country from its counterparts, according to Jacobs and Coolidge (2007). Few problems are more universal than government red tape. From Bangkok to Cape Town to New York, businesses around the world complain about the costs, delays, uncertainties and corruption linked to thickets of administrative procedures and formalities (Jacobs & Coolidge, 2007).
A country with administrative procedures that are not consistent, efficient and transparent, and are excessively time-consuming and costly to accomplish when establishing and operating a business, will see its potential investors lose money and
36 | 126 Administrative Barriers Encountered in South Africa by Foreign Investors decide to locate elsewhere or cancel their investment projects (Morisset & Neso, 2002). The most costly effect of administrative procedures is their ability to raise barriers to market entry for new businesses, investors, products and services (Jacobs and Coolidge, 2006).
Too many administrative barriers are prevalent in the steps an investor takes to start a new business in South Africa as well as during several of the most routine interactions between a business and government agencies during normal business operations (Jacobs & Coolidge, 2006).
2.8 Causes and effects of administrative barriers
According to Finance Minister, Pravin Gordhan (2010), South Africa must work to create an environment that is favourable to domestic and foreign investment by removing the cost of doing business by lowering red tape, while quality public services must be rendered to the business world.
Similarly, in his speech delivered on the occasion of his 100th day in office, the South African President Mr. Zuma, while addressing members of the Italian, Portuguese and Greek communities in Germiston, said that South Africa was attracting low levels of foreign direct investment when compared to other developing countries (SAPA, 2010).
Additionally, President Zuma stated that regulatory and administrative processes need to be streamlined to assist foreign nationals in setting up business and avoid undue delays (Naidu, 2009). According to Naidu (2009), President Zuma admitted that foreign companies find it difficult to initiate business in the country because of perceived trade barriers, tight exchange controls and a perceived lack of will by government agencies, and that the cost of doing business in South Africa should be reduced.
The South African president also highlighted administrative processes as being major issues that impact negatively on foreign direct investment inflows into the country (Naidu, 200). Arvantis (2005) pointed out that foreign investors by and large face the same legal and regulatory environment as domestic investors. Several common causes underlie administrative barriers to investment and these include poor policy formulations, where administrative systems and laws cannot achieve their stated goals because the
37 | 126 Administrative Barriers Encountered in South Africa by Foreign Investors procedures required to implement policy are inherently intrusive, excessively complicated, and difficult to administer (Miller, 2003).
Decades of inferior legislation in South Africa have created a tangle of complexity and inconsistency mainly for black owned businesses (African Commission, 2008). According to the African Commission (2008), the situation presents an almost insurmountable obstacle to enterprises seeking formality (for example, foreign direct investors).
Most foreign companies prefer to operate under high levels of certainty, transparency and consistency (Dupasquier & Osakwe, 2005). The degree of administrative complexity in South Africa is directly related to the post-colonial interventionist policies pursued the country and, in some cases, to carry-overs from the colonial era itself (Emery & Spence, 1999). In South Africa, the colonial regimes often imposed complex regulations to protect the position of companies in the home country and limit the areas in which international businesses could operate (Emery & Spence, 1999).
Emery and Spence (1999) support the argument that attributes administrative barriers to outdated procedures, inappropriate policies, poor implementation and lack of institutional capacity in government agencies. It is often reflected in the inability of organisations to implement fully their mandates and is typically circumvented, often with payments to ensure the compliance of government officials.
2.8.1.1 Bureaucratic obstruction
Administrative barriers stem from the way regulations are enforced and include excessive paperwork, inefficiency, delayed decisions, inaccessibility of services, bureaucratic obstruction and corruption and other abuses of authority (African Commission, 2008).
2.8.1.2 Conflicting laws
Administrative barriers in some parts of the economy are caused by conflicting laws that lead to confusion in the implementation of procedures and requirements (Emerging Market Economics, 2005). This may be due to an insufficiently developed legal and regulatory framework that encourages excessive discretionary decision making or individual negotiations (Miller, 2003).
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Uncoordinated legal reforms (for example, new laws that may include contradictory clauses), a poor framework of implementing regulations (for example, vague or confusing regulations that leave considerable discretion to government bureaucrats) and government officials who are often still distrustful of private businessmen or who view them as a source of supplemental income generation, are all types of administrative barriers to investment (UN, 2003).
2.8.1.3 Excessive paperwork and lack of coordination
In South Africa, systems are still largely paper-based and generate many documents (often multiple copies) that have to be physically lodged at the Customs office and stamped by a succession of officers and agencies (Emerging Market Economics, 2005). A lack of coordination between different agencies can be caused by some authorities being based at different locations and with different hours of operation, leading to additional delays and expense (Emerging Market Economics, 2005).
2.8.1.4 Insufficiently trained personnel
Insufficiently trained personnel can cause unnecessary delays in providing the required information accurately and inadequate levels of suitably qualified personnel to handle the volume of work generated within trade and facilitation institutions can result in insufficiently motivated personnel and lead to unnecessary delays (Djankvov, La-Porta, Lopez-De-Silanes & Shleifer, 2002).
2.9 Bilateral and multilateral investment agreements
In the quest to increase South Africa‘s participation in the global market, including the attraction of FDI, the country entered into bilateral and multilateral investment agreements with the aim of reducing constraints, profiling the country, receiving preferential trading treatment and other benefits.
Trade agreements are either bilateral, involving only two countries, or multilateral, involving more than two countries (Smith, Sumner & Rosson, 2001). Bilateral and multilateral investment agreements are usually intended to lower trade barriers between participating countries (though not necessarily between those countries and other non-
39 | 126 Administrative Barriers Encountered in South Africa by Foreign Investors participating countries) and, as a consequence, increase the degree of economic integration between the participants ( Smith et al. 2001).
South Africa has bilateral investment agreements with Argentina, Austria, Belgium, Canada, Chile, the Czech Republic, Finland, France, Germany, Greece, Mauritius, The Netherlands, the Republic of Korea, Spain, Sweden, Switzerland, Turkey, the United Kingdom, the United States of America and many more (US Department of State, 2010). A trade, development and cooperation agreement between South Africa and the European Union went into force on 1 January 2000 (US Department of State, 2010).
South Africa participates in various world forums and has been an active participant in the World Trade Organisation (WTO) since 1994 (UN, 2003). South Africa is a founder member and a signatory of the General Agreement on Tariffs and Trade (GATT), which was replaced by the World Trade Organisation (WTO).
Closer to home, South Africa is a member of the South African Customs Union (SACU) UN, 2003). This is a long-standing agreement between South African, Botswana, Lesotho, Namibia and Swaziland, which came into effect in 1969 and is the oldest Customs Union in the world (DTI, 2010).
The aim of the SACU is to maintain the free interchange of goods between member countries. It provides for a common external tariff and a common excise tariff to this common customs area (Department of International Relations and Cooperation, Republic of South Africa, 2003). According to the customs union, each country agrees to remove all barriers to trade (in particular, tariffs) for the other member countries and adopt common external tariffs. Trade between members is thus relatively free and unimpeded.
All customs and excises collected in the common customs area are paid into South Africa‘s national Revenue Fund. The revenue is shared among members according to a revenue-sharing formula as described in the agreement (Department of International Relations and Cooperation, Republic of South Africa, 2003).
Recently, South Africa was invited to become a member of the BRIC countries (DTI, 2011). The current BRIC countries are Brazil, Russia, India and China (Rowland, 2010).
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The BRIC countries have both the fastest-growing and largest emerging market economies. They account for almost three billion people, or just under half of the total population of the world, and have also contributed to the majority of world GDP growth (the Economist 2010).
2.10 Conclusion
The potential contribution of foreign direct investment to economic development and integration into the world economy is now widely recognised. It assumed prime importance in the wake of declining concessional aid, which has created a preference for long-term and more stable financial inflows into the country.
In the global economy today, we see many developing countries competing for foreign direct investment. According to UNCTAD (2010), FDI is said to be an important factor for spurring the development of a nation and some of the advantages include:
The integration into global economy - A country, which invites FDI, can gain a greater foothold in the world economy by getting access to a wider global market.
Technology advancement - FDI can introduce world-level technology and technical know-how and processes to developing countries. Foreign expertise can be an important factor in upgrading the existing technical processes in a host country. For example, the civilian nuclear deal between India and the United States would lead to transfer of nuclear energy know-how between the two countries and allow India to upgrade its civilian nuclear facilities.
Increased competition - As FDI brings in advances in technology and processes, it increases the competition in the domestic economy of the developing country, which has attracted the FDI. Other companies will also have to improve their processes and products in order to stay competitive in the market. Overall, FDI improves the quality of a products and processes in a particular sector.
Improved human resources - Employees of a host country in which there is an FDI get exposure to globally valued skills. The training and skills up grading can enhance the value of the human resources of the host country.
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The review reveals the origins of administrative barriers, which rest under the shadow of outdated procedures, inappropriate policies, poor implementation, lack of coordination among government department and a lack of institutional capacity in government agencies. This is often reflected in the inability of organisations to implement fully their mandates and is typically circumvented, often with payments to ensure the compliance of government officials.
The next chapter will discuss the research methodology of this study, including the research paradigm, research design, data collection and data analysis methods.
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CHAPTER 3: RESEARCH METHODOLOGY
Chapter Two dealt with a critical analysis of the consistency, efficiency and transparency of administrative processes relating to foreign direct investment in South Africa. The literature review chapter summed up the four main foreign direct investment theories as presented by theorists Dunning (1980); Buckley and Casson (1976, 1985); Hymer (1970) and Vernon (1966, 1971).
The research methodology of this study is influenced and structured by the research process 'onion', which was developed and introduced by Saunders, Lewis and Thornhill (2007). In this respect the 'Research Methodology' section of this study is divided into five sub-topics, each of which aims to provide a detailed explanation of the research process. The following sub-sections explain the philosophical position, research approach, research strategies, time horizon of this study, and data collections method.
Figure 3.1: Research Process “Onion”
Source: Saunders et al. (2007)
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3.1 Research philosophy
Knowledge is a complex experience influenced and developed by a range of appropriate variables (Hallebone & Priest, 2008). According to Saunders et al. (2003), a research philosophy represents a researcher's perception of the way knowledge is constructed and there are three research philosophies recognised in the literature - philosophies of positivism, interpretivism and realism. Each of these philosophies provides a distinctive view on the way knowledge is developed (Blaikie, 2007). It is important for a research process to establish its research philosophy clearly, as this philosophy has a significant impact on the methodological framework applied.
The philosophy which is incorporated in the context of this study is the research philosophy of positivism. Positivism is chosen because it assumes that science quantitatively measures independent facts about a single apprehensible reality (Healy & Perry, 2000). Researchers view the world through a ―one-way mirror‖ (Healy & Perry, 2000). In other words, data (in this study, the current situation regarding the consistency, efficiency and transparency of administrative processes to foreign direct investment in South Africa) and the analysis thereof are value-free; data do not change through being observed. This position holds that the goal of knowledge is simply to describe the phenomena that we experience. The purpose of science is simply to stick to what we can observe and measure (Krauss, 2005). Mackenzie and Knipe (2006) refer to the positivist belief that reality is stable and can be observed and described from an objective viewpoint.
Furthermore, the researcher focuses on the ultimate goal of the study, which is to develop a law of general understanding by discovering necessary and sufficient conditions for foreign direct investment in South Africa by critical interpretations and gradually establishing research conclusions.
3.2 Research approach and strategy
Deriving from the research philosophy is the determination of the research approach, strategy and time horizon. Saunders et al. (2007) state that it was accepted that research approaches are attached to different research philosophies. This study adopts a positivistic view, because the study‘s aim focuses on theory testing whereby the theory
44 | 126 Administrative Barriers Encountered in South Africa by Foreign Investors was first adopted as the framework for developing and testing hypotheses in a specific research context. Therefore, a deductive orientation of the study was chosen. A deductive research approach is suggested to be suitable for scientific research, where the researcher develops a hypothesis that is tested and examined to establish a theory (Hussey & Hussey, 1997).
Furthermore, the study aims to arrive at a specific conclusion based on generalisations of the outcome. This approach works from the general to the specific (it is knowledge- driven). Given the nature of the study‘s objectives (i.e. to investigate the consistencies, efficiencies and transparencies of administrative processes relating to foreign direct investment in South Africa) and the adequate availability of prior evidence to formulate hypothesised relationships for examination, it was deemed that cross-section descriptive survey was the most appropriate option for this study.
Cross-sectional designs offer many advantages, such as: they are relatively inexpensive and take little time to conduct; can estimate the prevalence of outcome of interest because a sample is usually taken from the whole population; many outcomes and risk factors can be assessed; they are useful for the generation of hypotheses and there is no loss to follow up.
3.3 Data collection methods
This study engaged a quantitative technique. A questionnaire survey was used as the main data collection instrument of this study. Quantitative data were used to stimulate policy debate and action, both by exposing potential challenges and by identifying inconsistencies, inefficiencies and non-transparency of administrative processes to foreign direct investment in South Africa. This was done with the aim of highlighting the areas where policymakers might investigate good practices regarding administrative processes.
Data collection in this study was done exclusively through telephone interviews based on a questionnaire format as per Appendix B. McDaniel and Gates (2001) define a questionnaire as a set of questions designed to generate the data necessary for accomplishing the objectives of the research project. According to Saunders et al. (2007)
45 | 126 Administrative Barriers Encountered in South Africa by Foreign Investors the questionnaire survey enables researchers to examine and explain relationships between constructs, in particular cause-and-effect relationships.
3.3.1 Instrument
The survey questionnaire was used as the main data-gathering instrument for this study (See Appendix A) likert scale. The questionnaire was divided into two main sections: a profile and the survey proper. The profile contains socio-demographic characteristics of the respondents such as the number of years they had served the company as well as their assigned job position. The aim of the survey was to explore the perceptions and experiences of the levels of administrative barriers that are encountered by foreign direct investors in South Africa. The questions were structured using the five-point Likert format. In this survey type, five choices were provided for every question or statement. The choices represent the degree of agreement or disagreement each respondent has on the given question. The scale below was used to interpret the total responses of all the respondents for every survey question by computing the weighted mean:
Table 3.1: Scale Scale Interpretation
5 strongly agree
4 tend to agree
3 neutral
2 tend to disagree
1 strongly disagree
The Likert survey was the selected questionnaire type as this enabled the respondents to answer the survey questions easily. In addition, this research instrument allowed the research to carry out the quantitative approach effectively with the use of statistics for data interpretation.
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3.3.2 Questionnaire development process
The process of questionnaire development for this study was based on the approach as suggested by Churchill and Lacobucci (2002) and was guided by the literature review and other questionnaires found during the review of literature, such as those developed by the World Bank Doing Business report (2010), and Djankov,et al. (2002). Mindful of the targeted population (senior executives), the length of the survey was a critical consideration. Although this meant that some sections of the questionnaire had to be collapsed into a single section, this helped to reduce the time required to complete the questionnaire. The questionnaire was specifically designed to suit telephone interviews with the aim of measuring the attitudes towards administrative processes in South Africa.
In order to achieve this, the following was considered during the design:
(1) Extra care was taken when choosing the words for the questionnaire.
(2) Simple language was carefully followed to allow respondents to understand the questions easily.
(3) Concepts were kept to a minimum and direct questions were asked.
(4) Different descriptors were used to avoid boring respondents or allowing them to get into a response pattern.
3.3.3 Pre-testing / pilot study
A pilot study was conducted in order to determine the effectiveness of the survey questionnaire as suggested by Polit and Beck (2004). It is necessary to test it before actually using it (Polit & Beck, 2004). Pre-testing was done and this helped determine the strengths and weaknesses of the survey concerning question format, wording and order and is an indispensable aid for developing a good questionnaire (Polit & Beck, 2004). Leedy and Ormrod (2005) pointed out that giving the questionnaire to at least six friends or colleagues will help to test the logical structure of the questionnaire as well as its easy understanding. Pre-testing was also done in order to reveal deficiencies in the design of a proposed experiment or procedure (Lancaster, Dodd & Williamson, 2004).
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Consistent with these perspectives, a pilot study was conducted in order to test specifically for questions variations, meaning, task difficulty and respondent interest and attention. The pilot study was conducted mainly in Sandton Johannesburg. The pilot study involved ten people. The group included three traders at the Johannesburg Stock Exchange, three from STANLIB Asset Management, two from independent investment brokers and the last two were lawyers involved in company registrations.
The aim of the selection was to offer diverse opinions and criticism based on varying degrees of knowledge of those involved in FDI activities. Traders were chosen as they trade shares of companies that are dually listed including FDI. Fund managers were chosen because they invest in these companies, while lawyers were selected because they give advice to and register foreign companies taking an interest in South Africa.
The outcome of the pilot study resulted in the questions being shortened and made more specific, given that the targeted population were senior executives in their organisations and have limited time to participate in any study. The average time needed to complete the revised questionnaire over the phone was also reduced from ten minutes to five minutes. This indicated that the revised questionnaire was now easy to understand and follow.
Corrections to the questionnaire were made according to recommendations of the pilot study and a final questionnaire was formulated (see Appendix A).
3.4 Research population and sampling
3.4.1 Population
A sampling frame is defined as the set of source materials from which the sample is selected (Durrheim, 2002). Zikmund (2003) argues that the process of sampling involves any procedure using a small number of items or parts of the whole population to make conclusions regarding the whole population. Durrheim (2002) defines sampling as a process that involves decisions about which people, settings, events, behaviours and/or social processes to observe.
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The most desirable characteristic of a sample is representativeness. Lunenburg and Irby (2008) pointed to the benefit of representativeness is that it enables results from the sample to be generalised to the population. According to Gall, Borg and Gall (2003), there is a wide range of possible options to consider when sampling. At all times, the purpose of the study needs to bear in mind these various strengths and weaknesses, as the practicality of different sampling methods need to be weighed.
The population group targeted for this study was executives of foreign-owned companies operating in South Africa. These executives were chosen as they form the largest part of the decision-making equation and have the broadest base of knowledge of and experience in foreign investing. They are able to give a correct interpretation of the experiences and perceptions of administrative barriers to foreign direct investment in South Africa.
The sampling frame for foreign companies where those that satisfies the following conditions:
(1) The names of the company, its executives and contact details were published in the 2010 annual edition by Business Monitor International. Business Monitor International is a well-respected and authoritative directory on foreign-owned companies. (2) Foreign-owned companies that were incorporated in the Republic of South African between the period of 1994 and 2010, as mentioned in the Foreign Companies South Africa Yearbook 2010. The main reason for this is that, prior to 1994; the South Africa government practiced discriminatory policies which excluded other investors. (3) The company must have a minimum of 10% foreign ownership. The numerical guideline of ownership of 10% of ordinary shares or voting stock determines the existence of a direct investment relationship (OECD, 1999). According to OECD Bench Mark, 10% foreign ownership implies that the direct investor is able to influence or participate in the management of an enterprise. (4) The company must have some value-adding activity in South Africa. A value-adding activity is a business activity that increases the worth of a product or service and for which the customer is willing to pay.
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Population screening was done in order to ascertain the accuracy of the information contained in Business Monitor International 2010 and the following issues were discovered:
Some of the names and contact details of the companies listed were purely South African companies with no foreign links (Sasol, Barloworld, University of Johannesburg, and Adcock). Furthermore, it was discovered that some of the subsidiaries were listed as separate companies (e.g. Aon group).
More than 200 contact details were no longer in use and more than 570 executives listed in the publication had left the company. The exercise narrowed down the population down to about 182.
3.4.2 Specifying sample method
Cooper and Schindler (2001) advance several compelling reasons for sampling, including lower costs, greater accuracy of results, and greater speed of data collection and availability of population elements. Sample selection is done so as to use a range of techniques, either probability sampling or non-probability sampling, which enable the researcher to collect data from a sub-group rather than the whole target population (Saunders, Lewis & Thornhill, 2000).
This study adopted a simple random sampling method, owing to time constraints. With a simple random sampling, each item or element of the population has an equal chance of being chosen at each draw (Parasuraman et al. 2004). A sample is random if the method for obtaining the sample meets the criterion of randomness (each element having an equal chance at each draw). The names of the executives representing foreign-owned companies were chosen at random.
Parasuraman, Grewal and Krishnan (2004) describe sampling as the selection of a fraction of the total number of units of interest to decision-makers for the ultimate purpose of being able to draw general conclusions about the entire body of units. Kane (2004) referred to sample size as the number of people to be surveyed or included in the research project. This study adapted a five-step procedure for drawing a sample based
50 | 126 Administrative Barriers Encountered in South Africa by Foreign Investors on Churchill and Iacobucci‘s (2002), recommendations. Figure 3.2 presents the procedure adopted in this study.
Figure 3.2: Research population and sample flow chart
Source: Churchill and Iacobucci (2002); Wilson (2006) and Siniscalco and Auriat (2005)
In order to calculate sample size, the following were considered:
The margin of error is the amount of error that the study can tolerate; in this case it is 5%.
The confidence is the amount of uncertainty the study can tolerate; in this case 95%.
The population to choose a sample from is 182 foreign-owned companies.
Response distribution, which tries to answer the question for each question, what will the expected result be? Is 50%. Using Roasoft, a web-based sample size calculator, the required sample was 124.
3.5 Procedure for data collection
The aim of the study was to increase the level of general knowledge and theoretical understanding of the consistency, efficiency and transparency of administrative processes relating to foreign direct investment in South Africa. Once data was collected, attention turned to data analysis. Polit, Beck and Hungler (2004) define data analysis as the systematic organisation and synthesis of the researched data and the testing of the research hypothesis. Cooper and Schindler (2003) state that before any analysis is
51 | 126 Administrative Barriers Encountered in South Africa by Foreign Investors done, the data collected must be edited for accuracy, uniformity, completeness, consistency and order, to simplify coding.
The completed questionnaires were given to STATKON (Statkon provides a professional, goal-orientated statistical consultation service to postgraduate students and researchers at the University of Johannesburg in respect of research design and methodology, experimental and questionnaire design, and statistical analysis of data).for analysis using SPSS (Statistical Package for the Social Sciences), a computer application that provides statistical analysis of data. It allows for in-depth data access and preparation, analytical reporting, graphics and modelling. Descriptive statistical methods such as frequency distribution, means, mode and standard deviations were conducted.
3.6 Data analysis and interpretation
According to Frankfort-Nachmias and Nachmias (2000), statistical techniques are a major tool for data analysis in social science research.
3.6.1 Data coding and editing
Data coding is a process of converting questionnaire data into numbers by assigning numbers or symbols to answer so that responses can be grouped into a limited number of classes or categories (Cooper & Schindler, 2003). Data coding means translating information into values suitable for computer entry and statistical analysis (Cooper & Schindler, 2003). All types of data (e.g., medical records, questionnaires, laboratory tests) must be coded, though in some cases the coding has been worked out in advance (Cooper & Schindler, 2003).
In this study, closed-ended questions were used and therefore there was no need to code each question. This was based on the fact that closed-end questions are ―self- coding‖ i.e., the code to be keyed is listed next to each response choice.
The first step in data processing is the editing of complete questionnaires (Globusz, 2010). Editing is a process of checking to detect or correct errors and omissions. In this
52 | 126 Administrative Barriers Encountered in South Africa by Foreign Investors regard, all questionnaires were checked thoroughly for completeness, accuracy and uniformity.
3.7 Statistical procedures
Statistical procedure is the process of gathering, organising, summarising, presenting and analysing data and inferring based on the analysis (Zikmund, 2000). To accomplish this, research elements, namely the research problem, objectives, characteristics of data and the underlying properties of the statistical techniques are considered (Malhotra, 2003). To meet the purposes of this study, descriptive and inferential analyses were applied.
3.7.1 Descriptive analysis
In this study, descriptive analysis was used. According to Sekaran (2003) and Zikmund (2000), descriptive analysis involves the transformation of raw data into a form that would provide information to describe a set of factors in a situation that will make them easy to understand and interpret. Descriptive statistics are used to describe the basic features of the data in a study (Zikmund, 2000). They provide simple summaries about the sample and measures used. Descriptive research reports data as measures of central tendency, which include mean, median and mode, and as measures of dispersion, which include deviance from the mean, variation, range and quartile (Lunenburg & Irby, 2008).
In this study, a descriptive analysis was conducted to give meaning to the collected data through frequency distribution, mean, and standard deviation, which were useful in identifying differences among groups.
3.7.2 Graphic presentation of data
The most convenient and popular way of describing data is graphical presentation. In this study, data are presented using graphs, pie charts and tables. Bar charts are used when comparing the values of multiple variables and are presented using vertical or horizontal bars. Bar charts are used to present frequency in a number of categories, while pie charts are used to illustrate proportion as a percentage of the whole.
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3.8 Validity and reliability
According to Easterby-Smith, Thorpe and Lowe (2002), the credibility of every research project depends on the validity and reliability of its findings and conclusions. Research can be characterised as reliable only if it yields the same results on a different occasion (Easterby-Smith et al. 2002). In order to achieve this, the study must be reliable, valid, transparent and replicable (Burns & Grove, 2005; Zikmund, 2006). Figure 3.3 below summarises reliability and validity. The most appropriate qualities for a research study are reliability and validity.
Figure 3.3: Illustration of reliable and valid measures
A B C D
Source: Trochim (2000)
Reliable, not Valid: When measurements are consistent (clustered) but they don't hit the target they are reliable but not valid, indicating that the concepts require substantial rethinking.
Valid, not Reliable: When measures are scattered widely around the target but they are not tightly clustered they valid, but not reliable, indicating that the indicators are not focused on the core concepts.
Neither Valid, nor Reliable: When measures are scattered but not focused around a core concept they are neither valid nor reliable, indicating that the entire tool needs to be rethought.
Both Valid and Reliable: The measurements are consistent and tightly focused around the core concept, indicating that the tool is a solid measure of the concept.
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3.8.1 Validity
According to Zikmund (2006), the purpose of measurement is to measure what we intend to measure. Researchers want to know if their measure is valid, and the question of validity expresses their concern with accurate measurement. Validity is the degree to which an instrument measures what it purports to measure (Lunenburg & Irby, 2008). A valid question will always be reliable, but a reliable measure does not guarantee the validity of the question (Webb, 2002).
In this study, validity was assured by the careful pre-testing with alternative questions that were designed to identify and measure administrative barriers and their effects on foreign direct investment in South Africa. Face validity is important in this research, as it measures the extent to which the respondent "knows" what is being measured and the extent to which it seems sensible to them (Asia Market Research, 2011). The use of a professional interviewer would increase the study‘s validity as it will reduce errors. The use of STATKON for results analysis would also reduce errors.
3.8.2 External validity
External validity refers to the degree to which a study or programme is transferable to another population, setting or time (Polit and Beck, 2004; Glasgow, Green and Ammerman, 2007). In this study, external validity is assured by the application of systematic selection of a large sample.
3.8.3 Reliability
Reliability refers to the fact that a question evokes the same set of responses each time it is asked in similar circumstances, thus focusing on accuracy (Last, 2001). For Jackson and Gillis (2003), the reliability of an instrument is the extent to which the results of using the instrument would be similar during repeated uses of the instrument. A study is reliable only if another researcher, using the same procedure and studying the same phenomenon, arrives at similar or comparable findings (LoBiondo-Wood & Haber, 2006; Sekaran, 2003). Accordingly, it is important that the researcher maintains a
55 | 126 Administrative Barriers Encountered in South Africa by Foreign Investors comprehensive protocol of his study in case others may be interested in checking its reliability (Sekaran, 2003).
Reliability in this study was achieved by ensuring that research questions were consistent in meaning across all members of a targeted group, delivered objectively and pre-tested as such. This was enhanced by consistency in the findings and by the researcher explaining the assumptions and theory underlying the study, leaving a detailed audit trail describing how the study was conducted and findings derived.
A test-retest method was used to test reliability and was the easiest way to determine the reliability of empirical measurements. A test-retest method is a technique used to estimate the reliability or consistency of some measurement by correlating the results of multiple measurements, spread over time (Rousson, Gasser & Seifert, 2002). In other words, the same test is given to the same people after a period of time. The reliability of the test (instrument) can be estimated by examining the consistency of the responses between the two tests (Rousson, Gasser & Seifert, 2002). The goal is to obtain the same results on the two administrations of the instrument, upon which the reliability coefficient will be 1.00. Normally, the correlation of measurements across time will be less than perfect due to different experiences and attitudes that respondents have encountered from the time of the first test (Rousson, Gasser & Seifert, 2002).
3.8.4 Factor Analysis and Reliability of Data
Factor analysis is a statistical method used to describe variability among observed, correlated variables in terms of a potentially lower number of unobserved, uncorrelated variables called factors. In other words, it is possible (Bartholomew, Steele, Galbraith & Moustaki, 2008).
Internal consistency is the extent to which tests or procedures assess the same characteristic, skill or quality (Colorado State University, 2010). Internal consistency is important as a measure of the precision of agreement between observers or of the measuring instruments used in a study. In this study, internal consistency is measured using Cronbach‘s alpha.
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Cronbach's alpha is a measure of internal consistency, that is, how closely related a set of items are as a group (Cronbach, 1951). A "high" value of alpha is often used (along with substantive arguments and possibly other statistical measures) as evidence that the items measure an underlying (or latent) construct (Colorado State University, 2010).
A factor analysis was conducted using the Principal Component Analysis and Varimax with Kaiser Normalisation and Rotation converged in 5 iterations. The item reliability is 0, 7221 and is therefore considered a reliable measurement. To detect possible differences between groups, one-way ANOVA tests were conducted.
3.9 Ethical considerations
As this study required the participation of human respondents, specifically senior executives of foreign owned companies in South Africa who are professionals, certain ethical issues were addressed. The consideration of these ethical issues was necessary for the purpose of ensuring the privacy as well as the safety of the participants.
In line with proper conduct as advocated by the University of Johannesburg, no-one was coerced to respond to this survey. Following the recommendations by de Laine (2000) and Kassim (2001), the respondents were asked to participate out of their own freewill, that is, they were told of their rights not to participate or to end their participation if they so wished. All respondents were briefed about the purpose of the study and how or why they were chosen. As such they were free from deception or stress that might arise from their participation in this research.
The respondents were given the assurance of protection through anonymity; neither their personal nor company identities are divulged in this study. Furthermore, the purpose of this study was explained to them and they were informed that the findings of the study would be available to them on request.
3.10 Limitations of the study
The researcher used a wide range of well-established, credible and contemporary academic and commercial literature sources. However, the list of references is not an exclusive one and there are many other sources, in terms of scientific domain and area,
57 | 126 Administrative Barriers Encountered in South Africa by Foreign Investors which could be used. In this respect the study was structured through a particular literature focus (foreign direct investment, procedures for registering companies and so on), which could vary depending on the literature sources that were consulted.
3.11 Conclusion
This chapter illustrates the research design, explains the process followed in the questionnaire administration and gives an introduction to the data analysis. Finally, ethical considerations pertaining to the collection of data were discussed. In the following chapter, results of the data analysis are presented.
This chapter covered the method of the study and dealt with data collection processes. The chapter also detailed the approach that was used and conditions under which the various stages of investigations were carried out from the development of initial contacts, questionnaire design and the pilot survey. The chapter further presented the way in which issues of validity and reliability were addressed in this study, that is, through the use of factor analysis and Cronbach's alpha. The method adopted for this study was exclusively through telephone interviews.
The research process onion was used as the guiding principle of how this study was conducted. The study followed a positivism research philosophy. Furthermore, the study used a cross-sectional approach and the study was a descriptive study.
Chapter 4 will present and discuss the research findings. Descriptive data will be presented using pie charts, histograms, bar charts and tables.
The relationship between administrative barriers and the flow of foreign direct investment will be investigated, with particular attention to start-up, locating and operational procedures.
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CHAPTER 4: DATA MANAGEMENT, ANALYSIS AND INTERPRETATION
4.1 Introduction
Chapter 3 discussed the research design and the methodology followed in this study. The methodology described in chapter three provided the foundation for data collection, analysis, presentation and interpretation. The measuring instrument was discussed, which gave an indication of the method of statistical analysis. The previous chapter stated that the study will follow a positivist approach and that a descriptive quantitative research design will be used. A simple random sampling method was preferred over other sampling techniques.
This chapter presents the data management employed and the results of the survey from the SPSS statistical analysis using one-way ANOVA, descriptive statistics and T-test. The demographic variables of the respondents and their responses to questions relating to start-up, operating and locating processes were analysed. Further analysis of the data was conducted to assure validity and reliability.
This study utilised telephone surveys following a structured questionnaire as a method of data collection. The interviewers recorded the respondents‘ answers to the questionnaires during the interview.
In order to complete this study it was necessary to analyse the data collected in order to test the hypothesis and answer the research questions. As indicated in the preceding chapter, data are interpreted in a descriptive form. Data are like letters of the alphabet: taken individually, they reveal very little (Sayce, 1999). Put together with a little thought and organisation, however, those same letters can tell a complete story (Miller, 1995). By focusing on data interpretation, presentation and analysis, this chapter describes how data were used to tell a story about administrative barriers relating to foreign direct investment in South Africa.
In line with the recommendation by Miller (1999), figure 4.1 below illustrates the key stages in the collection, management, analysis and presentation of data.
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Figure 4.1: Data collection, management, analysis and presentation flow chart
Source: Miller (1999).
This chapter of the study presents a general descriptive analysis of the collected data. A discussion of the investors‘ personal information provided a general view of the companies participated in the study and helped provide a healthier understanding of the comprehensive analysis that follows.
This chapter contains three sections. Section 4.2 presents the descriptive results of the response rate and a descriptive analysis of the respondents and the organisations they represent. The main attributes of the respondents, such as current position, industry or sector, and the province in which the business is situated, are also given in this section.
Section 4.3 presents descriptive data concerning the process (administration) relating to foreign direct investment in South Africa. Section 4.4 presents a descriptive analysis of the respondents‘ opinions about the consistency, efficiency and transparency of administrative barriers to foreign direct investment in South Africa.
Data collection and the subsequent data analysis were driven by the aims of the research: to ascertain the consistency, efficiency and transparency of administrative processes relating to foreign direct investment in South Africa, and to make recommendations on ways to ease or eliminate any barriers encountered in these processes.
Accurate information plays an important role in the success of any study and effective data management offers any study an inherent advantage (World Bank, 2010).The data
60 | 126 Administrative Barriers Encountered in South Africa by Foreign Investors management process for this study involved collecting, organising, storing, analysing, interpreting and presenting data in order to meet the aims of the study and provide appropriate recommendations.
Microsoft Excel spread sheets were used for managing the data as they are adequate for most data management needs and have the advantage of being relatively simple to use. In order to maintain the integrity of the collected data, the original data sheets (completed questionnaires) were printed and proof read by my dear colleague and friend Thando Mathabathe. Data entries on the computerised spread sheets were then checked against these data sheets as a precaution against mistakes being made when recording data on paper; and on the spread sheet.
A combination of descriptive and statistical tools was employed to analyse the findings of the study. Data were processed using the Statistical Package for the Social Sciences (SPSS) and Microsoft Excel programmes. The data analysis is presented in tables, graphs and pie charts.
4.1.1 Data Analysis (statistical)
Based on the following considerations, a non-parametric statistics method was used in this study: i) Non-parametric methods make fewer assumptions; their applicability is much wider than the corresponding parametric methods; they may be applied in situations where less is known about the application in question and, due to the reliance on fewer assumptions, non-parametric methods are more robust (Corder & Foreman, 2009) ii) Another justification for the use of non-parametric methods is simplicity. In certain cases, even when the use of parametric methods is justified, non-parametric methods may be easier to use. Due both to their simplicity and to their greater robustness, non-parametric methods are seen by some statisticians as leaving less room for improper use and misunderstanding (Corder &Foreman, 2009).
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4.1.2 Advantages of non-parametric methods a) Non-parametric methods require no or very limited assumptions to be made about the format of the data and may therefore be preferable when the assumptions required for parametric methods are not valid. b) Non-parametric methods can be useful for dealing with unexpected, outlying observations that might be problematic with a parametric approach. c) Non-parametric methods are intuitive and are simple to carry out by hand, for small samples at least.
4.2 Response rate of survey
Current best practices of research dictate that the researcher should attempt to maximise response rates and minimise risk of no response errors (Japec et al. 2000). In data collection, there are two types of non-response, namely item and unit non-response. Item non-response occurs when certain questions in a survey are not answered by a respondent (De Luca & Peracchi, 2006). Unit non-response takes place when a randomly sampled individual cannot be contacted or refuses to participate in a survey. The bias occurs when answers to questions differ among the observed and non- respondent items or units (Hussey & Hussey, 1997).
The response rate of a survey is an important measurement of the level of effort undertaken during data collection (Bartlett, Kotrlik and Higgins, 2001) and a way of describing the reliability of the resulting data (Groves, 2006). If the response rate is less than 30%, the value and validity of the method and results are in question (Gillham, 2000).
The Council for Marketing and Opinion Research (CMOR) (2004) in the United States concluded that the average response rate of telephone surveys is around 17%; for random digit dialling (RDD) surveys, the average was around 9.17% as presented in table 4.1 below:
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Table 4.1: Average Telephone Survey Response Rates in the U.S., 2004
Average response rate Number of surveys Rate Telephone overall 1 364 17.0% Telephone RDD 761 9.17%
Source: CMOR (2004).
In this study, the non-response rate was minimised by using three experienced telephone interviewers, based in different locations in South Africa. Collectively these interviewers have more that fifteen years of experience in the telephone-research surveys industry. The interviewers were supervisors who worked for two leading research survey companies based in Johannesburg and Cape Town. Notification calls were made prior to the interview being conducted in order to reduce the non-response rate during the interview. Data collection was conducted over three days.
One hundred and twenty-four respondents were required for this study, as per the sample calculation. Of the respondents were identified from the Foreign Companies South Africa Yearbook 2010 edition, 74.1% agreed to be interviewed while 26% either refused to participate or were not available. In line with the recommendation of Gillham (2000), this study has met the minimum response rate required with 92 fully completed and useable surveys out of 124, a response rate of 74.19%.
Figure 4.2: Percentage participation in the survey
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4.3 Demographic characteristics of respondents
Respondents were asked to provide biographic data of themselves and their organisations. Demographic data (Appendix A) were required to ensure that individual survey respondents were qualified to represent the position of the company as a whole and could make accurate statements regarding their organisations‘ experience and perceptions regarding administrative processes relating to their foreign direct business in South Africa. The data were also required in order to establish the province with the worst administrative barriers. The following was asked in this section: Current position of the executive, the industry category and location.
4.3.1 Distribution of respondents by job position
The main reason for interviewing only senior executives was to make sure that the information obtained was credible. In this study, credibility refers to the objective and subjective components of the believability of a source (Rieh & Danielson, 2007).
Table 4.2: Job Position
Current position of respondent: Participants n=92 Frequency Percentage (%) Chief Executive Officer 34 37% Managing Director 26 28% Financial Director 21 23% Other 11 12% Total 92 100%
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Figure 4.3: Job Position
Table 4.2 and Figure 4.3 above show the positions held by respondents. From the respondents that were interviewed, 34 (37%) were chief executive officers, 26 (28%) were managing directors, 21 (23%) were financial directors and the balance of 11 (12%) were other senior officials, including human resources managers, communication directors and marketing directors. Most of the respondents held senior positions and were capable of providing accurate information.
4.3.2 Distribution of respondents by primary industry sector
Table 4.3: Primary industry sector No Industry Catergory Frequency Percent 1 Automobile & Automobile parts 22 24% 2 Mining, Exploration & Petrochemicals 21 23% 3 Banking/Finance/Insurance 20 22% 4 IT – Software development 6 5% 5 Electrical & electronics manufacturing 6 6% 6 Energy, Chemical & Pharmaceuticals & Medical 9 10% 7 Textile 7 9% 8 Other 1 1% Total 92 100
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Figure 4.4: Primary industry sector
Figure 4.3 and Table 4.3 above show the distribution of respondents by industry category: 24% of those who agreed to be interviewed were from automobile and automobile parts industries (motor spare parts shops, Car sales and manufactures); 23% were from the mining, exploration and petrochemicals industries and 22% were from the financial industry, which includes banking, insurance and other financial activities. The remainders were from the information and technology, electrical and electronics manufacturing, energy, pharmaceutical, medicals, textile and other industries.
4.3.3 Location of responding company
Location is of utmost importance to foreign direct investment and the success of a business. A new business needs be in the correct location, that is, where it is easily accessible to customers and suppliers, and where it is relatively easy to set up an operation. Being in the right location is a key ingredient in a business's success. If a company selects the wrong location, it may have inadequate access to raw materials, labor, customers and good transportation links.
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Table 4.4: Location of responding company No Province Frequency Percent 1 Eastern Cape 10 11% 2 Free State 4 4% 3 Gauteng 20 22% 4 KwaZulu-Natal 17 19% 5 Limpopo 6 6% 6 Mpumalanga 9 10% 7 Northern Cape 5 5% 8 North West 4 4% 9 Western Cape 17 19% Total 92 100%
Figure 4.5: Location of responding company
Figure 4.3 and Table 4.3 above show that companies with operations in the Gauteng province (22%) represented the largest proportion of the survey, followed by the Western Cape (19%) and KwaZulu Natal (19%). Other companies were located in the Eastern Cape (11%), Mpumalanga (10%), Limpopo (6%), Free State and the North West (4% each). This leads to the conclusion that the study will be biased towards the Gauteng, KwaZulu Natal and Western Cape provinces.
4.3.4 Summary of demographic details
The demographic section of the survey revealed details about the respondent‘s position, the company‘s industry category and the location (province) of the company. The
67 | 126 Administrative Barriers Encountered in South Africa by Foreign Investors majority of respondents were chief executive officers and were from the Gauteng, Kwazulu Natal and the Western Cape provinces. Therefore, the results of the study will be biased towards these provinces.
4.4 Perception of the respondents – descriptive data
The proceeding sections present the results of the survey in accordance with the Likert technique according to Babbie (2005), which presents respondents to agree or disagree with a set of attitude statements using a five-point scale, where 5 is equivalent to strong agreement with the statement and 1 is a strong disagreement with the statement. In this study, the use of the Likert technique provided a greater understanding of the attitudes of foreign investors towards the administrative processes in South Africa, based on their experience with these processes.
To recap, the aim of this study was to ascertaining the levels of consistency, efficiency and transparency of start-up, operation and locating processes that relate to foreign direct investment in South Africa. The World Bank Doing Business Report (2010) lists certain steps that an investor has to take in order to start up a new investment business. These steps involve some of the most routine interactions between a business and government agencies during normal business operations. The tables below show the responses to questions asked about these steps in relation to South African processes.
Table 4.5: Approval process
Question 4: Overall, approval process for inbound FDI in South Africa takes a reasonable amount of time Cumulative Frequency Percent Valid Percent Percent Valid 1 33 35.9 35.9 35.9 2 18 19.6 19.6 55.4 3 17 18.5 18.5 73.9 4 15 16.3 16.3 90.2 5 9 9.8 9.8 100.0 Total 92 100.0 100.0
Table 4.5 above shows that 35.9% of the respondents strongly disagree with the statement that approval process for inbound FDI in South Africa takes a reasonable
68 | 126 Administrative Barriers Encountered in South Africa by Foreign Investors amount of time. Almost three quarters of respondents disagreed strongly, tended to disagree or had a neutral position.
Table 4.6: Efficiency - approvals
Question 5: Once the correct documentation has been submitted, approval takes place without delay Cumulative Frequency Percent Valid Percent Percent Valid 1 7 7.6 7.6 7.6 2 11 12.0 12.0 19.6 3 29 31.5 31.5 51.1 4 19 20.7 20.7 71.7 5 26 28.3 28.3 100.0 Total 92 100.0 100.0
Table 4.6 above shows that 31.5% neither agree nor disagree with the statement that approval takes place without delay once all required documentation has been received. Collectively 49 % of the respondents strongly agree or tend to agree with the above statement.
Table 4.7: Speed of resolving queries
Question 6: Queries relating to inbound FDI are dealt with promptly Cumulative Frequency Percent Valid Percent Percent Valid 1 19 20.7 20.7 20.7 2 13 14.1 14.1 34.8 3 25 27.2 27.2 62.0 4 19 20.7 20.7 82.6 5 16 17.4 17.4 100.0 Total 92 100.0 100.0
Table 4.7 shows that there was a mixed reaction towards the statement that queries relating to inbound FDI are dealt with promptly. 27% were neutral, 20.7% tended to agree, 27.7% disagreed strongly, 17.4% agreed strongly and 14.1 % disagreed with the statement.
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Table 4.8: Consistency of approval for inward FDI
Question 7: All applications for inward FDI are treated equally Cumulative Frequency Percent Valid Percent Percent Valid 1 18 19.6 19.6 19.6 2 14 15.2 15.2 34.8 3 29 31.5 31.5 66.3 4 16 17.4 17.4 83.7 5 15 16.3 16.3 100.0 Total 92 100.0 100.0
The figures in table 4.8 above show that 31.5% of respondents had a neutral opinion regarding the treatment of applications. 19.6% strongly disagreed that applications for FDI are treated equally, 17.4% tended to agree with the statement, 16.3% strongly agreed, while 15.2% tended to disagree with the statement.
Table 4.9: Transparency on registering a company
Question 8: Information requirements relating to registering a company are readily available Cumulative Frequency Percent Valid Percent Percent Valid 1 31 33.7 33.7 33.7 2 7 7.6 7.6 41.3 3 26 28.3 28.3 69.6 4 20 21.7 21.7 91.3 5 8 8.7 8.7 100.0 Total 92 100.0 100.0
Table 4.9 above shows that 33.7% of respondents strongly disagreed with the statement that information requirements relating to registering a company are readily available. 28% of respondents were neutral, 21, 7% tended to agree with the statement, 8.7% agreed strongly, while 7.6% tended to disagree with the statement.
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Table 4.10: Transparency on registering a company
Question 9: The processes for obtaining the necessary approvals is clear Cumulative Frequency Percent Valid Percent Percent Valid 1 22 23.9 23.9 23.9 2 18 19.6 19.6 43.5 3 25 27.2 27.2 70.7 4 9 9.8 9.8 80.4 5 18 19.6 19.6 100.0 Total 92 100.0 100.0
Table 4.10 above shows that 27.2% of respondents were neutral regarding the statement that processes for obtaining necessary approvals are clear; 23.9% disagreed strongly, 19.6% tended to disagree, 19.6% tend to agree, while 9.8% tended to agree with the statement..
Table 4.11: Efficiency of permits approvals for expatriates
Question 10: The process of applying for work permits for expatriates is simple Cumulative Frequency Percent Valid Percent Percent Valid 1 19 20.7 20.7 20.7 2 14 15.2 15.2 35.9 3 24 26.1 26.1 62.0 4 16 17.4 17.4 79.3 5 19 20.7 20.7 100.0 Total 92 100.0 100.0
Table 4.11 above shows that 26.1% of respondents had a neutral opinion regarding the statement that processes of applying for work permits for expatriates is simple. 20.7% agreed strongly, 20.7% disagreed strongly, 17.4% tended to agree, while 15.2% tended to disagree with the statement.
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Table 4.12: Transparency of permits approvals for expatriates
Question 11: There is sufficient information available about different licensing processes in South Africa Cumulative
Frequency Percent Valid Percent Percent Valid 1 28 30.4 30.4 30.4 2 16 17.4 17.4 47.8 3 21 22.8 22.8 70.7 4 15 16.3 16.3 87.0 5 12 13.0 13.0 100.0 Total 92 100.0 100.0
Table 4.12 above shows that 30.4% of respondents strongly disagreed with the statement that there is sufficient information available regarding licensing processes. 22.8% had a neutral view, 17.4% tended to disagree, 16.3% tended to agree and 13% agreed with the statement.
Table 4.13: Consistency of compliance and inspections
Question 12: Compliance inspections are conducted consistently across businesses in South Africa Cumulative Frequency Percent Valid Percent Percent Valid 1 18 19.6 19.6 19.6 2 14 15.2 15.2 34.8 3 24 26.1 26.1 60.9 4 19 20.7 20.7 81.5 5 17 18.5 18.5 100.0 Total 92 100.0 100.0
As perceived by the respondents, table 4.13 above shows that 26.1% of the respondents had a neutral view regarding the statement that compliance inspections are conducted consistently across businesses in South Africa. 20.7% tend to agree with the statement, 19.6% strongly disagree, 18.5% agree strongly, while 15.2% tend to disagree.
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Table 4.14: Consistency of compliance and inspections
Question 13: Labour regulations do not make South Africa an unattractive country for investment Cumulative Frequency Percent Valid Percent Percent Valid 1 23 25.0 25.0 25.0 2 23 25.0 25.0 50.0 3 28 30.4 30.4 80.4 4 12 13.0 13.0 93.5 5 6 6.5 6.5 100.0 Total 92 100.0 100.0
Table 4.14 above shows that 30.4% of respondents had a neutral view regarding the statement that labour regulations do not make South Africa an unattractive country for investment. 25% strongly disagreed, another 25% tended to disagree, 13% tended to agree and 6.5% strongly agreed with the statement.
Table 4.15: Efficiency of coordination amongst government department
Question 14: There is clear coordination amongst government departments when dealing with permits and licences required for starting, operating and locating a foreign direct business in South Africa Cumulative Frequency Percent Valid Percent Percent Valid 1 29 31.5 31.5 31.5 2 13 14.1 14.1 45.7 3 25 27.2 27.2 72.8 4 13 14.1 14.1 87.0 5 12 13.0 13.0 100.0 Total 92 100.0 100.0
Table 4.15 above shows that 31.5% disagreed strongly with the statement that there is coordination amongst government departments when dealing with permits and licences required for starting, operating and locating a foreign direct business in South Africa. 27.2% had a neutral position, 14.1% tended to disagree, 14.1% tended to agree and 13% strongly agreed with the statement.
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Table 4.16: Competence of authorities
Question 15: South African authorities are competent when dealing with queries regarding foreign investment Cumulative Frequency Percent Valid Percent Percent Valid 1 16 17.4 17.4 17.4 2 27 29.3 29.3 46.7 3 17 18.5 18.5 65.2 4 14 15.2 15.2 80.4 5 18 19.6 19.6 100.0 Total 92 100.0 100.0
Table 4.16 above shows that 29.3% of respondents tended to disagree with the statement that South African authorities are competent in dealing with queries regarding foreign investment. 19.6% agreed strongly, 18.5% had a neutral position, 17.4% disagreed strongly and 15.2% tended to agree with the statement.
Table 4.17: Explicit or implicit need to give bribes
Question 16: There is no explicit or implicit need to give bribes in South Africa when dealing with the authorities Cumulative Frequency Percent Valid Percent Percent Valid 1 24 26.1 26.1 26.1 2 23 25.0 25.0 51.1 3 20 21.7 21.7 72.8 4 13 14.1 14.1 87.0 5 12 13.0 13.0 100.0 Total 92 100.0 100.0
Table 4.17 shows that 26.1% of respondents strongly disagreed with the statement that there is no explicit or implicit need to give bribes in South Africa when dealing with the authorities; 25% tended to disagree, 21.7% had a neutral view, 14.1% tended to agree and 13% strongly agreed with this statement.
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Table 4.18: Excessive paperwork
Question 17: There is no excessive paperwork in the administrative processes relating to foreign direct investment in South Africa Cumulative Frequency Percent Valid Percent Percent Valid 1 28 30.4 30.4 30.4 2 23 25.0 25.0 55.4 3 30 32.6 32.6 88.0 4 9 9.8 9.8 97.8 5 2 2.2 2.2 100.0 Total 92 100.0 100.0
Table 4.17 shows that 32.6% of respondents had a neutral position with regard to the statement that there is no excessive paperwork in the administrative processes relating to foreign direct investment in South Africa; 30.4% strongly disagreed, 25% tended to disagree, 9.8% tended to agree and 2.2% strongly agreed with this statement.
Table 4.19: Consistency, efficiency & transparency of administrative processes
Question 18: Consistent, efficient and transparent administrative processes increase the opportunity for and attraction of FDI in South Africa Cumulative Frequency Percent Valid Percent Percent Valid 2 2 2.2 2.2 2.2 3 25 27.2 27.2 29.3 4 26 28.3 28.3 57.6 5 39 42.4 42.4 100.0 Total 92 100.0 100.0
Table 4.19 shows that 42.5% of respondents strongly agreed with the statement that consistent, efficient and transparent administrative processes increase the opportunity for and attraction of FDI in South Africa; 28.3% tended to agree, 27.2% had a neutral view, while 2.2% strongly disagreed with this statement.
4.4.1 Summary of descriptive data
Descriptive statistical analysis was used to transform raw data into a form that was easy to understand and interpret. A summary of the descriptive statistics obtained from the
75 | 126 Administrative Barriers Encountered in South Africa by Foreign Investors survey conducted with 92 executives of foreign-owned companies in South Africa is provided in Table 4.20 and Figure 4.4 below.
Table 4.20: Summary of descriptive data
Summary of Descriptive Statistics Std. Question N Minimum Maximum Mean Deviation 4 92 1 5 2.45 1.378 5 92 1 5 3.50 1.236 6 92 1 5 3.00 1.375 7 92 1 5 2.96 1.334 8 92 1 5 2.64 1.371 9 92 1 5 2.82 1.421 10 92 1 5 3.02 1.414 11 92 1 5 3.18 1.283 12 92 1 5 2.64 1.403 13 92 1 5 3.03 1.378 14 92 1 5 2.51 1.191 15 92 1 5 2.63 1.396 16 92 1 5 2.90 1.391 17 92 1 5 2.63 1.356 18 92 1 5 2.28 1.072 19 92 2 5 4.11 .883 Valid N 92
(listwise)
Figure 4.6: Mean values of processes
4.5
4
3.5
3
2.5
2
1.5
1
0.5
0 Q4 Q5 Q6 Q7 Q8 Q9 Q10 Q11 Q12 Q13 Q14 Q15 Q16 Q17 Q18 Q19
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4.5 Homogeneity of variances
4.5.1 One-way ANOVA
The aim of the one-way ANOVA was to compare the group means of the 16 processes statements amongst the three groups (Chief Executive Officers, Managing Directors and Financial Directors) to see if they share the same or different views on the 16 processes.
One of the assumptions of the one-way ANOVA is that the variances of the groups being compared are similar. The table Test of Homogeneity of Variances (see below) shows the result of Levene's Test of Homogeneity of Variance, which tests for similar variances (Levene, 1960). If the significance value is greater than 0.05 (found in the Sig. column) then there appears homogeneity of variances. From the table, Levene's Statistic has significance values all above 0.05 and, therefore, the assumption of homogeneity of variance is met.
Table 4.21: One-way ANOVA Job Position Managing Financial Levene's CEO ANOVA Director Director Test (N=34) (N=26) (N=21) Sig. Std. Std. Std. Sig. Mean Mean Mean Dev. Dev. Dev. Q4 2.71 1.382 2.31 1.350 2.29 1.384 0.710 0.422 Q5 3.38 1.303 3.27 1.185 3.90 1.221 0.851 0.190 Q6 3.15 1.374 2.92 1.440 2.76 1.446 0.976 0.604 Q7 3.00 1.414 2.96 1.455 2.81 1.327 0.848 0.883 Q8 2.68 1.387 2.42 1.301 2.57 1.399 0.951 0.776 Q9 2.68 1.273 2.88 1.505 2.90 1.513 0.523 0.792 Q10 2.97 1.507 2.88 1.177 3.33 1.528 0.133 0.526 Q11 3.12 1.250 3.54 1.208 3.00 1.414 0.922 0.300 Q12 2.44 1.397 2.69 1.320 2.52 1.504 0.786 0.788 Q13 3.24 1.232 3.19 1.415 2.86 1.352 0.807 0.562 Q14 2.47 1.261 2.69 1.225 2.38 1.024 0.595 0.644 Q15 2.65 1.368 2.77 1.583 2.67 1.317 0.402 0.944 Q16 2.65 1.433 2.88 1.336 3.24 1.179 0.455 0.289 Q17 2.62 1.303 2.50 1.334 2.62 1.499 0.493 0.936 Q18 2.12 1.008 2.23 0.908 2.57 1.287 0.074 0.300 Q19 4.09 0.900 4.31 0.838 3.95 0.973 0.814 0.391
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Figure 4.7: Output of the ANOVA analysis
The output of the ANOVA analysis shows that in this study the significance levels are all above 0.05 and therefore there is no statistically significant difference amongst the three groups for each of the processes. In other words, despite the job position that the respondents have, they all share the same view on each of the processes.
4.6 Factor analysis and reliability of data
A factor analysis was conducted using the Principal Component Analysis and Varimax with Kaiser Normalisation and Rotation converged in 5 iterations. The item reliability is 0, 7221 and is therefore considered a reliable measurement.
To detect possible differences between groups, one-way ANOVA tests were conducted, all 16 items under processes were put through Factor Analysis.
A reliability test was conducted for all items (Q4-Q18); the results are reflected in table 4.22 below:
Table 4.22: Reliability of statistics
Cronbach's N of Alpha Items .7221 16
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Table 4.22 shows that the alpha is equal to or greater than 0.7221 which means that the study is reliable. According to Bland and Altman (1997), and George and Mallery (2003), and alpha coefficient of more than 0.7 is acceptable.
4.7 Conclusion
This chapter presented the data management and data analysis methods used in the study, and the responses received from the survey. In this study, administrative barriers to foreign direct investment in South Africa were investigated with the aim of ascertaining the consistency, efficiency and transparency of these processes. . The results have been derived from survey of senior executives of foreign owned companies in South Africa.
Administrative barriers to foreign direct investment in South Africa seem to be inconsistency, ineffective and procedures are not transparent. In order to alleviate the burden caused by administrative barriers, a comprehensive administrative simplification processes is required. The aim of the administrative simplification is the reduction of burdens imposed by formalities and paperwork to investors. From a broader perspective, the reduction of administrative burdens takes into account some policy processes behind administrative procedures that a foreign investors go through (start-up, operating and locating procedures).
Chapter 5 will present the conclusions and recommendations based on the research purpose, research questions and results of the study. The study limitations which were encountered during the study will be described and possible avenues for future research will be proposed. The chapter will conclude with a summary of the value of this study.
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CHAPTER 5: CONCLUSIONS, RECOMMENDATIONS AND IMPLICATIONS FOR FUTURE STUDY
5.1 Introduction
Chapter 4 presented the data management, results and findings of the study in detail. The purpose of this study was to ascertain the level of consistency, efficiency and transparency on start-up, operating and locating processes that relate to foreign direct investment in South Africa, and to develop appropriate recommendations for eliminating or alleviating administrative barriers encountered in these processes.
The study addressed these research objectives and this chapter contains a summary, conclusions, and recommendations based on an evaluation of the levels of consistency, efficiency and transparency of administrative processes for FDI in South Africa. This chapter will also describe the study limitations encountered and highlight possible avenues for future research. The chapter concludes with a summary of the value of this research study.
5.2 Overview of the study
Chapter 1 presented the problem statement, with the aim of motivating the importance of the study. FDI administrative processes that are not consistent, efficient and transparent become barriers to entry and limit competition and new investment opportunities in the country (UN, 2003). Based on the problem statement, the objective of the research was to ascertain the levels of consistency, efficiency and transparency of administrative processes pertaining to foreign direct investment in South Africa.
Chapter 2 contained an in-depth literature review that focused on the eclectic theory of foreign direct investment, the positive and negative impact of FDI on the host country, administrative processes, and causes of administrative barriers to FDI in South Africa. The review of the literature helped to identify both the causes and effects of these administrative barriers.
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Chapter 3 focused on the study methodology, the research design, explains the process followed in the questionnaire design, administration and gives an introduction to the data analysis. Finally, the chapter discussed the ethical considerations pertaining to the collection of data.
Chapter 4 focused on data management, presentation, interpretation and analysis.
Chapter 5 will focus on issues identified by the study. This chapter will also provide the conclusion and recommendations, limitations experienced during the study and suggestions for future study.
5.3 Causes of administrative barriers in South Africa
Administrative barriers are the bureaucratic requirements that flow from regulations, their implementation and enforcement (Bannock, 2002). Administrative barriers are the hassle that dissuades foreign investors from wanting to interact with a country. According to Bannock (2002), administrative barriers are influenced by many factors including: i) Excessive paperwork. ii) Civil service inefficiencies leading to delays in decision-making. iii) Low levels of civil service capacity e.g. poor skills levels so that mistakes are made, too few people and access points providing services. iv) Inaccessibility, as when there is too little delegation to the front-line and decisions have to be referred up the management chain. v) General bureaucratic obstruction (perhaps caused by corruption providing implicit and explicit for bribes). vi) Abuse of position (linked to corruption).
The majority of the surveyed respondents in this study regarded administrative barriers as an obstacle to their operations; they viewed administrative processes relating to start- up, operating and locating processes in South Africa as inefficient, inconsistent, not transparent and subject to corruption. The study and literature review identified various causes of administrative barriers to foreign direct investment in South Africa as follows:
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5.3.1 Lack of knowledge of government staff
Jacobs and Coolidge (2006) noted that a significant lack of capacity and understanding of procedures contributes to unnecessary delays in the FDI process. Lack of knowledge of government staff, or failure to shoulder their responsibilities and serve foreign direct investors in the best possible way, was also identified in the study as a barrier to FDI.
5.3.2 Lack of transparency, and corruption
The lack of transparency regarding procedures and processes leads to corruption. Corruption remains present in many business activities in South Africa and contributes to unnecessary administrative burdens experienced by foreign investors (Myint, 2000).
5.3.3 Excessive documentation requirements
Application processes in South Africa are still largely paper-based and generate many documents (often requiring multiple copies) that must be physically lodged at different government agencies in the country (Emerging Market Economies, 2005).
5.3.4 Lack of coordination between government agencies
Effective institutions help foster FDI. Easily accessible and reliable information and efficient and predictable actions by public institutions help create a business environment conducive to investment. For instance, studies have shown that 70% of countries miss out on foreign investment due to deficiencies of investment promotion institutions in providing potential investors with accurate and up-to date information (World Bank Group, 2009). In South Africa, some government authorities are based at different locations and have different hours of operation, leading to additional delay and expense (Organisation for Economic Co-operation and Development, 2003).
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5.3.5 Insufficient use of information and technology
Routine procedures that can be automated are done manually or, when there is automation, obsolete information and technology systems are used (Emerging Market Economies, 2005).
5.4 Conclusions as per study objectives
This study reached a number of conclusions that indicate that the objectives have been achieved. These conclusions will be discussed in detail in this chapter.
5.4.1 The study objective
It must be remembered that the point of departure of this study has been to ascertain the levels of consistency, efficiency and transparency of administrative processes relating to start-up, operating and locating processes for foreign direct investors in South Africa. The literature review and results of the study provided useful insights into these administrative processes. The literature review identified administrative processes that are not consistent, efficient and transparent, and the study findings were in agreement with the issues raised in the literature review. There is also strong evidence that suggests that easing or eliminating some of the administrative barriers to foreign direct investment can boost the inflows of inward FDI.
South Africa was ranked 34th overall out of 182 countries surveyed in the Doing Business Report 2110 (World Bank, 2010) in terms of the ease of doing business. The country‘s ranking is especially poor in areas that are critical to foreign direct investment: starting a business is ranked 67; dealing with building permits, 52; registering property, 90; closing a business, 76; trading across borders, 148 (World Bank, 2010). This proves that administrative barriers exist in South Africa.
(1) Start-up procedures
Start-up procedures include immigration procedures for foreign investors; registration procedures for both domestic and foreign investors (including company registration, tax registration, social funds, and statistical registration); anti-monopoly clearance (if
83 | 126 Administrative Barriers Encountered in South Africa by Foreign Investors applicable) and a sample of sectoral business licences (e.g. transport, construction, exploration) (Jacobs & Coolidge, 2006, OECD, 2003). These mandatory approvals are essential as they are required by a business before it starts operating.
The study concluded that start-up procedures in South Africa are not transparent and are cumbersome and time-consuming. The start-up procedures that cause the most problems for foreign investors in South Africa, as identified by the study, are the process of obtaining work permits for expatriates, and sector-specific regulatory regimes. Labour registration was also identified as a problem area.
(2) Locating procedures
Locating procedures include key aspects of site development including land allocation and registration, building permits, utility connections, inspections and occupancy permits, and environmental standards (Jacobs & Coolidge, 2006, OECD, 2003).
The findings of the study indicate that locating barriers are experienced by foreign investors when acquiring a property, developing it, connecting to utility networks (water, electricity, fixed-line telephone and so on), and complying with inspections regulations. Specific concerns were raised for obtaining building permits, site development, obtaining of building approvals and utility connections.
(3) Operational and reporting processes
Operating procedures and reporting requirements include tax administration, import and export procedures, foreign exchange procedures, product certification, labour regulations and relations, transport, and government inspections (Jacobs & Coolidge, 2006; OECD, 2003).
The study findings revealed that operational and reporting processes in South Africa were not consistent, effective and transparent. Barriers to exit may also discourage entry, since exit and entry rates tend to be closely related (Martins, 2004).
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5.5 Processes
5.5.1 Consistency of administrative processes
Administrative processes must demonstrate high levels of fairness, impartiality and objectivity in order for a country to attract investment. The study results have revealed that administrative processes relating to foreign direct investment in South Africa are not grounded in a commitment to consistent application; the majority of respondents stated that rules and processes are not applied uniformly.
5.5.2 Efficiency of administrative processes
Administrative inefficiency is the most frequently observed deterrent to FDI today (Drabek & Payne, 2001). Administrative inefficiencies in this study were viewed as being a result of lack of skilled personnel, poor policy framework and understaffing of offices from national to local authorities. In this study, the term efficiency denoted the accuracy and speed of issuing the necessary permits or licences in order for a business to start operating. The results of the study revealed that when it comes to issuing of work permits, the majority of respondents believe that the processes were not efficient enough.
5.5.3 Transparency of administrative processes
According to Drabek and Payne (2001), the term transparency of economic policy is a catch-all phrase that refers to the clarity and effectiveness of activities that have an impact on public policy. A study conducted by WTO (Drabek and Payne, 2001) pointed to the degree of non-transparency as an important factor in a country's attractiveness to foreign investors. High levels of non-transparency can greatly retard the amount of foreign investment that a country might otherwise expect to receive (Drabek & Payne, 2001).
In this study, most respondents held the view that administrative processes in South Africa are not open, objective, and fair. In most cases, the authorities were viewed as acting according to prescribed legal procedural standards and substantive criteria that
85 | 126 Administrative Barriers Encountered in South Africa by Foreign Investors are not applied impartially to all investors who are interested in starting an operation in the country. For example, if two applicants seek a manufacturing licence for similar products, the authorities making this decision should be required to apply transparent standards to both applicants in an impartial fashion.
Table 5.1: Transparency International World Corruption Index (Corruption Perceptions Index (CPI)
CPI Score Rank Country 2010 2009 2008 54 South Africa 4.5 4.7 4.9
Source: Transparency International (2010)
Table 5.1 above shows South Africa‘s ranking from 2008 until 2010 according to the Transparency International World Corruption Index (Transparency International, 2010). Transparency International is a civil society organisation dedicated to curbing both national and international corruption, and ranks countries according the degree of public sector corruption using an index that ranges between 10 and 0, with 10 implying a highly clean public sector and 0 a highly corrupt public sector (United Nations, 2008). The table shows that South Africa is currently ranked 54 out of 182 countries in terms of transparency and corruption levels and that there has been an increase in corrupt activities in South Africa as the score decreased consistently from 2008 to 2010.
Transparent processes are vital for foreign investors because non-transparency imposes additional costs on businesses. Similarly, foreign investors require transparent protection of property rights; transparent processes positively influence business attitudes while non-transparent processes inject uncertainty and information asymmetries into the international space (Drabek & Payne, 2001).
5.6 Recommendations
The main aim of the recommendations in this study is to propose ways of creating a transparent and stable investment climate in South Africa that is attractive to foreign investors. In line with the outcomes of the study, President Zuma called for more streamlined investment processes, while the South African Minister of Finance Mr Pravin Gordhan stressed the need for an enabling foreign direct investment environment (South
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African Government Information, 2010). This study gave direction for the formulation of an appropriate administrative simplification programme aimed at easing administrative burdens and allocating resources to improve South Africa‘s image as a preferred investment destination.
5.6.1 Identifying the problem areas
Given the multiplicity of administrative processes and procedures encountered by foreign investors, the process of identifying problem areas is critical. This will help the government to focus the attention on critical areas that require fixing.
In most cases, some of these problem areas can be overcome by the implementation of measures and systems that increase consistency, efficiency and transparency by reducing arbitrariness of government decisions.
Once the problem areas are identified, the cycle of reform process can begin. The cycle of reforms process is part of the strategy for simplifying administrative processes and follows sequential phases (figure 5.1) of identifying the problem, consultation in a dialogue, design, implementation and evaluation (Grava, 2004).
Figure 5.1: The cycle of reform
Source: FIAS (2006)
Figure 5.1 above shows the cycle of reform model. The cycle is composed of four parts. First, the methodical identification of problems (e.g. with a study of administrative barriers
87 | 126 Administrative Barriers Encountered in South Africa by Foreign Investors to investment, survey of administrative and regulatory costs, and/or other means) followed by a list of recommendations for improvement (Grava, 2004). Second, it involves drawing interested parties from government and the business community into a structured dialogue in order to prioritize reforms and agree on an action plan for improvement (Grava, 2004). These discussions should establish which reforms are the highest priority from the private sector‘s point of view and which are feasible from the government‘s point of view (World Bank Policy Research, 2002).
Consultation is important not only to echo the concerns expressed by stakeholders, who should be reflected in the strategy per se, but also to make the strategy relevant and viable in the medium to long term (Donelan, 2008, De Vos, 2008, OECD, 2003). Third is the implementation of the agreed reform programme, a critical stage of the process (World Bank Policy Research, 2002). Fourth is the monitoring and evaluation of reforms in the form of regular reporting and assessment to ascertain the effectiveness of these activities, along with the means to identify new problems (World Bank Policy Research, 2002).
5.6.2 Administrative simplification programme
According to Martins (2004) and the OECD (2003), creating a conducive and enabling foreign direct environment requires a broad range of reinforcements and supportive policies. There is considerable evidence that regulatory and administrative burdens can impose adversely on foreign direct investment activity. Legal entry barriers should be avoided unless their benefits are very clear according to Martins (2004).
Administrative processes that are not consistent, efficient and transparent have been identified by this study as severe impediments to inward FDI in South Africa. Administrative simplification strategies are aimed at reducing administrative complexities and uncertainty, and cutting red tape in order to reduce unnecessary burdens created by inconsistencies, inefficiencies and non-transparency of administrative processes (OECD, 2006, UN, 2003). A broader perspective of the reduction of administrative burdens should take into consideration all the policies and processes behind administrative procedures (for example, start–up licences, and permits that are necessary to conduct commercial or industrial operations) relating to FDI in South Africa (OECD, 2009).
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The final objective of administrative simplification is to create an economically enabling administrative process that is consistent, efficient and transparent towards inward FDI. The challenge for the South African government is, on one hand, to balance the need to use administrative procedures as a source of information and as a tool for implementing public policies, and on the other, to minimise the interferences implied by these requirements in terms of the resources demanded to comply with them (OECD , 2006).
There are many advantages of simplifying administrative processes towards inward FDI. OECD (2009), referred to three key benefits of administrative processes simplification as: (i) innovation can be encouraged through efficiency gains, (ii) FDI can be attracted by fewer administrative burdens, releasing resources otherwise devoted to red tape, and (iii) better public governance can be attained with more effective tools available for policy implementation. In this study, recommendations for administrative simplification can be seen from two different perspectives.
• prioritising those reform recommendations regarding inward FDI and developing an action plan for removal of administrative barriers
• ensuring sound implementation of the action plan and monitoring the impact of the reforms that were implemented.
(a) Coordinating the key players
The ability to offer comprehensive services efficiently requires tremendous effort and the coordination of different authorities that are involved. Many different disciplines are required to build and maintain a practice that competently offers several services. Therefore, government departments must hire qualified personnel for each service area offered.
(b) Reducing registration complexities
A simpler process of registration is strongly recommended. In particular, the reduction of paperwork and timelines while maintaining the thoroughness of the process. This can be done by reducing the number of signatures required for an approval or eliminating those procedures that are time-consuming.
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Registration complexities can be reduced by taking advantage of technology and introducing a paperless environment. There are organisations that specialises in creating user-friendly and flexible solutions that allow authorities to utilise digital documents throughout the foreign direct investment process such as IBM, Workflow and Gijima AST. The initial cost of such a conversion can be 'paid off' in the long term by improved efficiencies of the processes.
(c) Resolving the lack of coordination amongst government departments
To resolve this lack of coordination requires a holistic formulation of the policies relating to FDI. The main objective of a holistic coordination policy is to overhaul, develop or streamline the decision-making process so that required finalisation is achieved without delaying the investment process (World Bank, 2010). Direct coordination is a time-saving and effective alternative for coordinating policy decisions from the sub-national level (provinces and municipalities) to the national government level and vice versa (United Nations, 2003). Lack of coordination discourages foreign investors to proceed with an investment in an economy that is riddled with delays (United Nations, 2003).
(d) Formulate transparent rules and regulations
According to Tobin and Rose-Ackerman (2005), foreign direct investment is unlikely unless investors have a reasonable understanding of the environment in which they will be operating and the rules and regulations that are in place. Transparent and clear rules and regulations play an important part in the attraction of foreign investment, as most investor prefers an economy with easy–to-understand rules and processes (United Nations, 2003).
Regulators should issue and make available to the public final regulatory actions and the basis for those actions in order to enhance public understanding thereof (Strongin, 2000). Regulators should also utilise open and public processes for consultation with the public on proposals for new regulations and changes to existing regulations (Strongin, 2000).
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Figure 5.2: Transparency of authorisation
Source: WTO (2001)
Figure 5.2 above shows the outcome of processes that are transparent.
5.7 Study hypothesis
The design of this study was to test the null hypothesis by collecting data and presenting the results to determine whether the null hypothesis was true or false as indicated in section 1.4 of this study as follows:
The hypothesis to be tested in this study is the level of consistency, transparency and efficiency of start-up, operating and locating processes to foreign direct investment in South Africa.
Null Hypotheses (Ho): Administrative processes are consistent, efficient and
transparent in South Arica. If this assumption holds (Ho) the hypothesis is not rejected.
Alternative Hypothesis (Ha): Administrative processes are not consistent, efficient and
transparent in South Africa. This hypothesis (Ha) is designed to negate the main hypothesis by validating the assumption.
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The stated hypothesis has been confirmed as follows: The levels of administrative processes to Foreign Direct Investment in South Africa are not consistent, efficient and transparent.
5.8 Implications for further study
Based on the several inconclusive findings of this study, this last section outlines a number of issues that might be considered if further studies are to be undertaken to better ascertain the impact of administrative barriers to FDI. The lack of studies on administrative barriers in South Africa demonstrates a need for additional study. An interesting extension of this study would be to analyse the cost caused by these administrative barriers to foreign direct investment. The laws for registering, operating and locating a business have been explored by numerous authors; FIAS, World Bank, Ngowi, Ndikumana and others however, more studies are needed in the area of administrative obstacles and processes and their impact on foreign direct investment.
It is likely that the adoption of a larger sample may provide clearer results concerning the inconsistencies, inefficiencies and non- transparency of administrative processes relating to FDI in South Africa. With increased importance placed on the positive effects of inward foreign direct investment in South Africa, it would be beneficial for additional research to be conducted in all spheres of the government that are involved with FDI to determine the impact of administrative barriers on FDI.
The limitations of the study, such as the unavailability of certain respondents, the refusal of respondents to comment on matters involving the government, unavailability of the actual FDI amounts, the unavailability of supporting data, and simple random sample of investors, could possibly prompt further investigation into government policies that affect the attraction of FDI.
5.9 Conclusion
Foreign investors are attracted by predictable, transparent, non-discriminatory regulations, and few or no administrative impediments to investment. Consequently, the legal and regulatory requirements for establishing, operating and locating a business can matter greatly to foreign investors. Lack of consistency, efficiency and transparency, as
92 | 126 Administrative Barriers Encountered in South Africa by Foreign Investors well as institutional weaknesses such as political interferences; provide fertile ground for graft masquerading as legitimate administrative processes.
A country‘s overbearing administrative processes and the high levels of inconsistencies, inefficiencies and non transparencies involved in government decisions can affect the decision of foreign investors. In that context, the reliability of administrative processes and fair treatment of all foreign investors are a serious consideration for multinationals contemplating new FDI commitments.
The inconsistencies, inefficiencies and non transparency of administrative processes have been identified as serious impediments to FDI and are among the most significant impediments to foreign direct investment in South Africa. While the South African government has enacted far-reaching policy and legal reforms, foreign investors have indicated that practical, day-to-day problems caused by bureaucracy and red tape still hold them back. Such bureaucracy also lowers the productivity and competitiveness of existing firms, and generally retards economic growth and employment (World Bank, 2010).
In order to overcome these barriers, the country must undertake reforms that reduce business burdens and increase the transparency of administrative processes in order to support investors, market entry and economic growth that in turn produce high-paying, high-quality jobs. Reforms that reduce administrative barriers (including red tape and paperwork burdens) contribute to good governance –improving the quality, objectivity, and professionalism of government regulatory bodies and reducing the opportunities for corruption and bribery (OECD, 2003).
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APPENDIX A: QUESTIONNAIRE
Dear Investor/Facilitator
Foreign direct investment (FDI) is an integral part of an open and effective international economic system and a major catalyst to the development of South Africa. Yet, this benefit cannot be realised fully if the country‘s administrative processes towards foreign direct investment are not consistent, efficient and transparent.
I am currently conducting a research study with the aim of ascertaining the level of consistency, efficiency and transparency of start-up, operation and locating processes and to further develop appropriate recommendations aimed at eliminating/alleviating, easing or removal of administrative barriers that are faced by foreign investors in South Africa.
I would appreciate your participation on this important topic. Completing the questionnaire should take no longer than five minutes of your time. Please note that the information obtained here will be treated in the strictest confidence. Neither your name nor the name of your company will be used in any document based on this study.
Should you have any queries or comments regarding this survey, you are welcome to contact me telephonically at 0834592880 or e-mail me at [email protected]
Thanking you in advance,
Yours sincerely
Isaac Mpofu
University of Johannesburg
Student Number 200582511
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1. Demographic information
1.1 What is your current position?
1 Chief executive officer
2 Managing director
3 Financial director
4 Other
1.2 Please specify in which primary industry or sector your company is active
1 Automobile & Automobile parts
2 Mining, Exploration & Petrochemicals
3 Banking/Finance/Insurance
4 IT – Software development
5 Electrical and electronics manufacturing
6 Energy
7 Chemicals
8 Machinery and Machine Tools
9 Pharmaceuticals & Medical
6 Textile
7 Other
1.3 In which province is your company located?
1 Eastern Cape
2 Free State
3 Gauteng
4 KwaZulu-Natal
5 Limpopo
6 Mpumalanga
7 Northern Cape
8 North West
9 Western Cape
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2. Processes
Please indicate to what degree you agree or disagree with the statements below: tend to disagre agree tend to Aspects of start-up, operating and locating processes neutral disagre e strongly agree e entirely
Score 2 1 0 -1 -2
Overall, approval process for inbound FDI in South 1 Africa takes a reasonable amount of time
Once the correct documentation has been submitted, 2 approval takes place without delay
Queries relating to inbound FDI are dealt with 3 promptly
Queries relating to inbound FDI are dealt with 4 efficiently
5 All applications for inward FDI are treated equally
Information requirements relating to registering a 6 company are readily available
The processes for obtaining the necessary approvals 7 is clear
The process of applying for work permits for 8 expatriates is simple
There is sufficient information available about 9 licensing rules in South Africa
Compliance inspections are conducted consistently 10 across South Africa
South African labour regulations do not make SA an 11 unattractive country for investment
There is clear coordination amongst government 12 departments
South African authorities are competent when dealing 13 with foreign investors
There is no explicit or implicit need to give bribes in 14 South Africa when dealing with the authorities
There is no excessive paperwork in the administrative 15 processes in South Africa Consistent, efficient and transparent administrative 16 processes increase the opportunity for and attraction of FDI in South Africa
Thank you for your participation.
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APPENDIX B: DEMOGRAPHICS RESULTS
Q1. Demographics:
Job Position
12%
37% Chief executive officer 23% Managing director Financial director Other
28%
Primary Industry Sector
Automobile & Automobile 1% parts 9% Mining, Exploration & Petrochemicals 24% 10% Banking/Finance/Insurance
IT- Software development 6% Electrical and electronics 5% manufacturing Energy, Chemical, 23% Pharmaceutical & Medical Textile 22%
Other
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Provinces
Eastern Cape 11% 4% Free State 19% Gauteng
4% KZN 5% 22% Limpopo Mpumalanga 10% Norther Cape 6% 19% North West Western Cape
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APPENDIX C: DESCRIPTIVE STATISTICS
Q2. Processes
Descriptive Statistics
N Minimum Maximu Mean Std. m Deviation P1 92 1 5 2.45 1.378
P2 92 1 5 3.50 1.236
P3 92 1 5 3.00 1.375
P4 92 1 5 2.96 1.334
P5 92 1 5 2.64 1.371
P6 92 1 5 2.82 1.421
P7 92 1 5 3.02 1.414
P8 92 1 5 3.18 1.283
P9 92 1 5 2.64 1.403
P10 92 1 5 3.03 1.378
P11 92 1 5 2.51 1.191
P12 92 1 5 2.63 1.396
P13 92 1 5 2.90 1.391
P14 92 1 5 2.63 1.356
P15 92 1 5 2.28 1.072
P16 92 2 5 4.11 .883
Valid N 92 (listwise)
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APPENDIX D: FREQUENCY TABLE
P4
Cumulative
Frequency Percent Valid Percent Percent
Valid 1 33 35.9 35.9 35.9
2 18 19.6 19.6 55.4
3 17 18.5 18.5 73.9
4 15 16.3 16.3 90.2
5 9 9.8 9.8 100.0
Total 92 100.0 100.0
P5
Cumulative
Frequency Percent Valid Percent Percent
Valid 1 7 7.6 7.6 7.6
2 11 12.0 12.0 19.6
3 29 31.5 31.5 51.1
4 19 20.7 20.7 71.7
5 26 28.3 28.3 100.0
Total 92 100.0 100.0
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P6
Cumulative
Frequency Percent Valid Percent Percent
Valid 1 19 20.7 20.7 20.7
2 13 14.1 14.1 34.8
3 25 27.2 27.2 62.0
4 19 20.7 20.7 82.6
5 16 17.4 17.4 100.0
Total 92 100.0 100.0
P7
Cumulative
Frequency Percent Valid Percent Percent
Valid 1 18 19.6 19.6 19.6
2 14 15.2 15.2 34.8
3 29 31.5 31.5 66.3
4 16 17.4 17.4 83.7
5 15 16.3 16.3 100.0
Total 92 100.0 100.0
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P8
Frequency Percent Valid Percent Cumulative Percent
Valid 1 31 33.7 33.7 33.7
2 7 7.6 7.6 41.3
3 26 28.3 28.3 69.6
4 20 21.7 21.7 91.3
5 8 8.7 8.7 100.0
Total 92 100.0 100.0
P9
Cumulative
Frequency Percent Valid Percent Percent
Valid 1 22 23.9 23.9 23.9
2 18 19.6 19.6 43.5
3 25 27.2 27.2 70.7
4 9 9.8 9.8 80.4
5 18 19.6 19.6 100.0
Total 92 100.0 100.0
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P10
Cumulative
Frequency Percent Valid Percent Percent
Valid 1 19 20.7 20.7 20.7
2 14 15.2 15.2 35.9
3 24 26.1 26.1 62.0
4 16 17.4 17.4 79.3
5 19 20.7 20.7 100.0
Total 92 100.0 100.0
P11
Cumulative
Frequency Percent Valid Percent Percent
Valid 1 28 30.4 30.4 30.4
2 16 17.4 17.4 47.8
3 21 22.8 22.8 70.7
4 15 16.3 16.3 87.0
5 12 13.0 13.0 100.0
Total 92 100.0 100.0
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P12
Cumulative
Frequency Percent Valid Percent Percent
Valid 1 18 19.6 19.6 19.6
2 14 15.2 15.2 34.8
3 24 26.1 26.1 60.9
4 19 20.7 20.7 81.5
5 17 18.5 18.5 100.0
Total 92 100.0 100.0
P13
Cumulative
Frequency Percent Valid Percent Percent
Valid 1 23 25.0 25.0 25.0
2 23 25.0 25.0 50.0
3 28 30.4 30.4 80.4
4 12 13.0 13.0 93.5
5 6 6.5 6.5 100.0
Total 92 100.0 100.0
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P14
Cumulative
Frequency Percent Valid Percent Percent
Valid 1 29 31.5 31.5 31.5
2 13 14.1 14.1 45.7
3 25 27.2 27.2 72.8
4 13 14.1 14.1 87.0
5 12 13.0 13.0 100.0
Total 92 100.0 100.0
P15
Cumulative
Frequency Percent Valid Percent Percent
Valid 1 16 17.4 17.4 17.4
2 27 29.3 29.3 46.7
3 17 18.5 18.5 65.2
4 14 15.2 15.2 80.4
5 18 19.6 19.6 100.0
Total 92 100.0 100.0
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P16
Cumulative
Frequency Percent Valid Percent Percent
Valid 1 24 26.1 26.1 26.1
2 23 25.0 25.0 51.1
3 20 21.7 21.7 72.8
4 13 14.1 14.1 87.0
5 12 13.0 13.0 100.0
Total 92 100.0 100.0
124 | 126 Administrative Barriers Encountered in South Africa by Foreign Investors
APPENDIX E: FACTOR ANALYSIS
KMO and Bartlett's Test Kaiser-Meyer-Olkin Measure of Sampling Adequacy. .722 Bartlett's Test of Approx. Chi-Square 27.267. Sphericity df 6
Sig. .005
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APPENDIX F: ONE-WAY ANOVA
Job Position Levene's CEO Managing Financial Director ANOVA Test (N=34) Director (N=26) (N=21)
Std. Std. Std. Sig. Mean Mean Mean Sig. Dev. Dev. Dev. Q4 2.71 1.382 2.31 1.350 2.29 1.384 0.710 0.422 Q5 3.38 1.303 3.27 1.185 3.90 1.221 0.851 0.190 Q6 3.15 1.374 2.92 1.440 2.76 1.446 0.976 0.604 Q7 3.00 1.414 2.96 1.455 2.81 1.327 0.848 0.883 Q8 2.68 1.387 2.42 1.301 2.57 1.399 0.951 0.776 Q9 2.68 1.273 2.88 1.505 2.90 1.513 0.523 0.792 Q10 2.97 1.507 2.88 1.177 3.33 1.528 0.133 0.526 Q11 3.12 1.250 3.54 1.208 3.00 1.414 0.922 0.300 Q12 2.44 1.397 2.69 1.320 2.52 1.504 0.786 0.788 Q13 3.24 1.232 3.19 1.415 2.86 1.352 0.807 0.562 Q14 2.47 1.261 2.69 1.225 2.38 1.024 0.595 0.644 Q15 2.65 1.368 2.77 1.583 2.67 1.317 0.402 0.944 Q16 2.65 1.433 2.88 1.336 3.24 1.179 0.455 0.289 Q17 2.62 1.303 2.50 1.334 2.62 1.499 0.493 0.936 Q18 2.12 1.008 2.23 0.908 2.57 1.287 0.074 0.300 Q19 4.09 0.900 4.31 0.838 3.95 0.973 0.814 0.391
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