Every year, Rand Merchant Bank releases its Where to Invest in Africa report, ranking 31 countries on things like economic growth, infrastructure and how easy it is to invest. In this year's edition, published on Tuesday, South Africa has dropped to 5th place, with Morocco moving ahead of us into 4th. Seychelles, Mauritius and Egypt hold the top three.
It's worth not getting too caught up in the ranking itself. Even Adrian Saville, whose consultancy Boundless World built the research with RMB, told Moneyweb not to read it as a shopping list: "Don't confuse the ranking with saying therefore we must go to number one, or number one has got no more work to do." But the factors behind our slip are worth paying attention to.
Why Morocco moved ahead
For starters, Morocco's economy grew by 4.9% last year, compared to just 1.1% here at home. A big part of that story is manufacturing, especially cars. Since 2015, Morocco has significantly expanded its automotive industry, producing about 502,000 vehicles last year, according to the international carmakers' body OICA, with the capacity to now build more than a million a year.
And that growth is attracting serious investment. According to UNCTAD, the UN body that tracks investment across borders, foreign direct investment into Morocco jumped 91% last year to $3.3 billion. South Africa, meanwhile, recorded a net outflow of $2.3 billion.
The part most headlines leave out
Before you start booking calls with emigration agencies, there's another side to those numbers. UNCTAD says most of the money leaving South Africa wasn't investors abandoning their factories. It came mainly from financial flows between parts of the same companies, profits being sent home to foreign owners, and takeover deals. In fact, count the brand-new investment projects companies announced last year, and South Africa drew more than Morocco: 160 projects worth $6.9 billion, against Morocco's 103 worth $6.6 billion.
On cars, South Africa isn't doing too badly either. We manufactured more than 618,000 vehicles last year, and Chinese manufacturers are showing growing interest in producing cars locally. But here's the thing: South Africa's economy is more than twice the size of Morocco's, yet we only build around 20% more vehicles. With both countries competing for many of the same international manufacturing contracts, it's fair to wonder whether we're dropping the ball, or whether they're simply firing on all cylinders.
RMB's report also ranks South Africa among Africa's three most resilient economies, alongside Algeria and Rwanda, and RMB chief economist Isaah Mhlanga explains why that counts: "Whereas two economies may look equally attractive on a static ranking, the more resilient of the two is, all else equal, the superior destination."
So this isn't a story about investors turning their backs on South Africa. It's a story about other African countries making real progress, and whether we can keep up with them. Because an economy growing at just 1.1% isn't doing us any favours.
