Factors influencing foreign direct investment of South African financial services firms in Sub-Saharan Africa

This research investigates the key elements that South African financial servicesfirms consider before making foreign direct investments (FDI) in Sub-SaharanAfrican (SSA) markets. Specifically it aims to establish the order of importance ofthe key factors influencing FDI as well as understanding the motivation behind theseinvestments and what methods of entry are preferred when these firms decide toenter a new market.The research performed was largely qualitative and used a questionnaire-baseddescriptive survey method to solicit opinions from key South African financialservices firms across all spectra of the industry.Based on responses it appears that South African financial services firms are moststrongly influenced by the political and economic stability of the country in questionas well as the profitability and long-term sustainability of its specific markets. Thedegree of available infrastructure in terms of IT and telecommunications as well asthe existence of credible financial systems were also viewed as highly importantconsiderations before investing in SSA. Other factors deemed important, but notnecessarily critical, included local labour and cultural considerations as well as thevolatility of local exchange rates. Factors such as the degree of economicagglomeration, presence of trade incentives, barriers and agreements as well asgeographic proximity of the new market did not appear to be a major influence onSouth African firms expanding into new markets.Given the uncertainty and ambiguity of most SSA markets many South Africanfinancial services firms prefer to enter existing markets via a majority stakeholderjoint venture with a local partner, or via a new investment if the market does notcurrently exist. The nature of the financial services firm also seems to influence theiiientry method and once in a new country most firms seem to prefer a full servicepresence. Additionally, the key motives cited for expansion northward were tobroaden revenue bases and improve profit margins as well as to stay close to localcustomers.With local South African markets becoming cramped many South African financialservices firms are looking to SSA for future growth. Given the risks andcomplexities of conducting business in Africa the findings of this research should beborne in mind by these firms before making critical investment decisions in thisregard.