Foreign investment has increased in importance during the 1990s, and has subsequently become the single most important component of total capital flows to developing countries. Institutional infrastructure and governance play a critical role in attracting foreign investments, and in turn, the quality of local governance directly affects the level and nature of private investment in a country. Developing countries rely upon private investment as a major determinant of economic growth, and the ability of a country to reduce or alleviate poverty and improve the lives of its citizens. The benefits of foreign investments are boundless, but ultimately, the success of these complex relationships hinges on good governance, which in the South African context, has been tainted by poor ethics behind foreign investments.
At this year’s inaugural investment conference, President Cyril Ramaphosa indicated that several initiatives would be implemented to improve economic growth and that foreign investment is positioned as the key driver of this. Ramaphosa announced that government is working with the World Bank to improve the ease of doing business in South Africa, and also detailed planned initiatives centred around an expansion of existing operations and the establishment of new ones.
But, in order to secure successful foreign investment, both public and private sector have to have concise strategies in place to enforce good governance and board-level integrity, and mitigate corruption.
According to Alex Roberts, CURA Software’s Regional Director of Sales and Operations, South Africa’s drive for foreign investment means that good governance is a fundamental national asset. “Good corporate governance can enhance the attractiveness of one country’s financial markets relative to another’s. Good governance and good institutions promote investment quality by reducing costs, risks and barriers for both national and foreign investors and by enabling the benefit of a better investment climate to further spread into society. In turn, weak governance creates the opposite effect and reinforces itself through a vicious cycle by which weak governance and weak institutions reduce the effectiveness of reforms addressed to improve them.”
Transparency is a tool of good governance, while corruption is a cause and a consequence of bad governance. Corruption and lack of transparency have distinct features and yet strong interactions among them. Transparency is essential to good governance as it supports its other attributes: enables accountability, fosters legitimacy and credibility and sustains effectiveness. The host government is the main entity responsible for the adequate openness and disclosure of its own activities. However, in matters relevant to foreign investment, the onus is on both home government and companies involved to ensure that areas of corporate social responsibility, corporate governance, revenue flows are maintained in an ethical manner.
Roberts concludes that while governance and good institutions are not the single determinant factor for foreign investment, good governance certainly does pay. “In order to establish a healthy and prosperous relationship with foreign investors, transparency – and the other four pillars of good governance: accountability, legitimacy and rule of law – must be upheld. Further to this, we must ensure that proper governance and reporting structures are put in place and maintained. Governance frameworks need to be implemented and monitored on a continuous basis in order to ensure that we can create the opportunity for maximum growth and return of this investment. Investment into South Africa is critical in order for us to get out of the current economic recession we are currently in and good governance is pivotal in supporting this.”
About CURA Software Solutions
CURA Software Solutions is a leading provider of Governance, Risk, Compliance and Risk-based Audit software solutions, implemented across more than 250 enterprise customers globally. These solutions offer a clear picture of risk across the organisation which leads to better decision-making and risk management. CURA enhances visibility into business activities and allows for information to be easily consumed and actioned, enabling better business performance and managing the uncertainty of risk
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