Abstract:
The purpose of this study was to investigate how Foreign Direct Investment (FDI) affects the growth of South Africa's automotive sector. The main goal was to evaluate the short-term and long-term interactions between FDI inflows and the performance of the automotive industry, with a particular focus on production output. To this end, the study employed a descriptive research design with a quantitative methodology, using secondary time-series data collected from 1988 to 2023. Data was sourced from STATS SA, UNCTAD, and the World Bank. The study utilised advanced econometric methods, including the Autoregressive Distributed Lag (ARDL) model and Johansen cointegration tests, to assess both the presence and strength of long-term relationships. The study tackled an essential deficiency in the existing research regarding the relationship between FDI and industry-specific growth, focusing on South Africa's role within the BRICS economies. The findings indicated that despite South Africa's continued attraction of FDI, the automotive sector shows lower production output relative to other BRICS members. The analysis demonstrated that FDI correlates positively with long-term industry growth, but its short-term impact is minimal and lacks statistical significance. Moreover, issues like macroeconomic instability, energy insecurity, and policy uncertainty were identified as factors that undermine the advantages of FDI. The study concluded that while FDI can encourage growth, its effect is constrained without robust supportive policies and a stable economic climate. Consequently, depending solely on FDI may not be adequate to revolutionise the industry. From these findings, the following recommendations are suggested: (1) Increase investor confidence by implementing consistent and clear policies, (2) improve the reliability of energy supply to aid production, (3) bolster local supplier networks to boost value addition, (4) invest in skill development relevant to automotive technologies, and (5) promote regional integration to tap into larger markets. This study adds to the existing knowledge base by empirically showing how FDI conditionally influences growth in specific industries within a developing economy, providing sectoral perspectives that go beyond the usual aggregate-level studies found in the literature. The study was constrained to the automotive sector and excluded other segments of manufacturing. Furthermore, it relied exclusively on secondary data, potentially overlooking qualitative elements affecting FDI outcomes. Future studies might investigate firm-level information or utilise mixed-method strategies to achieve a more thorough understanding of investor views and sectoral dynamics. Comparative analyses with other BRICS countries could illuminate structural challenges that are distinctive to South Africa.
