Reference no: EM13127100

Your employer, the CEO of a major American company, was very interested in your report on investment and growth in South Africa.  She is now considering making an investment in South Africa.  But first, she wonders whether other foreign companies have been important investors in South Africa in recent years.  She is now asking you to provide a one page memo answering the following question:

"How important is foreign direct investment to South Africa?"

Show the data, and write a paragraph summarizing what the data show.  Since she is very busy, she has asked you to use a MAXIMUM of one page; not to try to explain "why," but just to clearly present the "bottom line" and answer the question.

The easiest way to get data on foreign direct investment is to go to the statistics website maintained by UNCTAD (United Nations Conference on Trade and Development).  UNCTAD has the most complete and up-to-date statistics, and also publishes the World Investment Report, which contains copious data and discussion.  You are not required to use this source; but we recommend it strongly.  However, you will quickly discover that the UNCTAD site is much less convenient and much less intuitive than the World Development Indicators site.  However, after a few frustrating minutes, you should be able to locate the data you need.  We have provided the following detailed comments in order to help you reduce that frustration to a minimum.

This will take you automatically to the "Reports" section.

• Navigate to "Inward and outward foreign direct investment flows, annual, 1970-2011."  A huge data table will open up.  The left-hand column of this table lists over one hundred aggregated country categories, ranging from "World," to "West African Economic and Monetary Union."  For now, ignore these categories and click on "Individual Economies," the first data row, just above "World."  Now you have an equally huge data table that lists (virtually) every economy in the world, including yours. 
• The key to actually using any of this data is that clicking on any of the four capitalized and underlined words YEAR, MEASURE, ECONOMY,  and DIRECTION will take you to a screen to format the table according to your preferences.  It's actually pretty easy to manipulate the data once you get to this screen.  Make sure you are looking at "Inward" for the DIRECTION.  (Start by clicking the tiny x in the upper left-hand corner to clear the boxes that are checked by default).  Choose the economies, years, and measures you want.  Don't choose too many years, economies or measures:  be selective! 
• Note that there are seven different "Measures," and that the first of these is the current US dollar value of incoming investment, and the following six Measures are essentially six different ways to normalize the data.  Remember that even after data is normalized, you still need to benchmark it against some comparison countries or aggregate categories.
• Choose the economies (including aggregate economy categories); measures; and years that you want to show.  Click the "Show Table" Box.  Notice that this database can only display one Measure at a time.  (More frustration!).  However, you can toggle between the Measures you have selected by clicking the diamonds to the right of the Measure name. 
• Click on the Excel icon to download an Excel format file that you can work with.  It appears that you have to download one Excel file per Measure, and then combine them yourself to work with them.

Clarifications and Advice:

1. Foreign direct investment (FDI) refers to investments in which the investor retains a long-term interest and some degree of control over the enterprise in which the investment takes place.  If equity (stock) ownership is involved, a minimum of 10% ownership is usually required before the investment is considered "direct," because then some degree of control is considered to be exercised.  (Otherwise stock purchases would be portfolio investment.)

2. Worldwide, FDI dropped dramatically between 2000 and 2002, and then again in 2008-2009.  These global events lead to significant year-to-year fluctuations for nearly all economies.

3. You have already reported to your CEO on the size of total investment (or total capital formation) in your country, which includes both domestic and foreign investment.  You may use the information from Exercise 1 if you choose to help answer the question.