Political risk and foreign direct investment in South Africa : using indigenous methods for analysis

Abstract: This study is a political risk analysis using two indigenous models to review foreign direct investment in South Africa. Focus is placed on South Africa as it positions itself favourably for foreign direct investment (FDI) flows and participates actively in the global economy. While there have been numerous studies on the determinants of FDI flows to developing countries, there is a lack of research surrounding the political dynamics and the impact this has on FDI. This is surprising as an absence of a clear understanding of how political risk analysis is approached may result in understating corporate risk strategies, foregoing opportunities, or the prospects of international capital flows that would otherwise add towards the growth of world trade. In spite of the recommendations and forecasts made, commercial political risk models do not explain or fully capture the politics behind risk analysis. The result is that they are not able to convey nuanced information that is likely to be captured in an indigenous model of political risk. In South Africa Albert Venter (2005) set out to develop a locally informed approach towards the study of political risk analysis. The Venter (2005) model draws on the sterling findings of Howell and Chaddick (1994) to reconfigure a model for political risk analyses and moreover, to assemble a model that is responsive to the South African context. In addition, although not branded as a political risk analysis model, the African Peer Review Mechanism (APRM) forms an indigenous approach towards assessing elements of political risk through a self-appraisal mechanism designed to benchmark governance and accelerate socio-economic development. Focus is placed on findings made on the state of South Africa based on its four thematic areas. Parallels will be made based on the results from the Venter (2005) model, and those obtained from the APRM.M.A. (Politics