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Impact of Foreign Direct Investment on Gender Equality in South Africa

Jonas Babics Birkbeck College, University of London

Introduction Foreign direct investment (FDI) is often praised to improve the economic situation of the host country and therefore also highly supported and welcomed by most governments and policy makers. Many research papers emphasize this, but others show that it can also have negative impacts, especially for certain population groups within a country. There exists a lot of research about the impact of foreign direct investment on discrimination and inequality and if the inflow of FDI can help to reduce it. However, the research is very often gender-blind and does not cover the discrepancy between men and women. Papers, which do focus on FDI and gender have either a global perspective and mainly cover developing countries in general or they examine individual countries. Country-specific research is concentrated on East Asia or South America, Mexico in particular. The case of South Africa might be more complex, as there is still significant racial discrimination and inequality, but further research should also focus on gender, since this might have an impact on growth and development in one of the biggest economies in Africa. With joining the BRIC countries in 2011 (BRICS Information Center, 2012) South Africa also showed its strength in the global economy and its importance as one of the leading emerging markets. Therefore, this paper reviews existing literature about the impact of foreign direct investment on gender equality in general and research about FDI in South Africa to examine a possible effect of FDI on South African women. This allows to find areas where the situation for women can be improved and possible policy implications, which should reduce gender inequality. As in many other developing, but also developed countries gender equality is still an unreached objective and for South Africa essential to achieve the Millennium Development Goals (Commission for Gender Equality, 2010).

FDI in South Africa Foreign direct investment in South Africa has a rather complex history and began early in the 19th century when Britain established a colony and located the first foreign-owned corporations. During the apartheid the inflow of FDI slowed down dramatically and many investors even left South Africa due to political pressure in their home countries (Gelb and Black, 2004). In the early 1980s the apartheid state tried to attract labour-intensive industries with generous incentives. Many companies from Taiwan Province of China in the light industries located themselves in South Africa and mainly employed women. However, the subsidies were slashed in 1991 (Hart, 2002). Since the transition of South Africa into a democracy in 1994, FDI inflows have been on an upward trend. The major sectors for FDI are automotives, chemicals and clothing (Trade and Investment South Africa, 2001). Foreign direct investment in South Africa is defined as investments where persons or organisations have at least 10% voting rights (UNCTAD, 2012). South Africa is the largest economy in Sub-Saharan Africa and direct investors use South Africa also as base for market entries into different Southern African economies. As in other developing countries, investors sometimes experience difficulties in the investment process, but in principle there is no discrimination between foreign and domestic investors (Trade and Investment South Africa, 2001). Gelb and Black (2004) outline the results of a large survey, which examined foreign direct investment in South Africa. The results are interesting also in the perspective of gender equality, since sector and motives of FDI might have a bigger or smaller impact on women. The major mode of entry for companies investing in South Africa was acquisition. There are fewer greenfield investments and they are rather prominent in smaller affiliates with less than 100 employees. Another interesting result of the survey is that most of the investments were done for market-seeking purposes and not for efficiency seeking. The starting sales of the foreign- owned companies went to 81% into the domestic market, which is quite significant for a developing country. The survey investigates possible impacts of investments on the host country, amongst others also training and with it investment in human capital. The overall expenditure on training is rather low, especially considering the skill shortage in South Africa. Foreign-owned companies probably spend slightly more on training than their domestic counterparts. In general foreign direct investment in South Africa have had a rather low impact on employment creation or capital inflows.

Gender Issues Almost in all countries globally there is still a disparity between men and women due to their gender and women are usually disadvantaged. To be able to discuss gender inequality, it should to be measured and analysed over time. From an economic perspective there are two main measurement methods used, the gender wage gap, which compares relative wages of men and women and the female employment share (Aguayo-Tellez, 2011). Both methods visualise that men and women with the same capabilities might not get the same opportunities. Most of the reviewed papers discuss the gender wage gap. However, women might face different ways of discrimination in general and there are still huge obstacles to overcome before women attain equality. Some of the biggest issues are poverty, education, health and gender-base violence (Commission for Gender Equality, nd). Especially in developing countries, women are often poorer, less educated, receive lower wages, have less access to resources and are more constrained in their employment choices than men (Korinek, 2005:4). Women in South Africa are also victims of inequality. The gender wage gap in South Africa is 33.5% compared to a global average of 22.4% and the unemployment rate of women is 43% compared to 30% for men (Rospab, 2001; Commission for Gender Equality, nd). These differences are huge, even compared to other developing countries and many women in South Africa are discriminated due to their gender and additionally also due to their skin colour and race. However, these numbers should be very critically absorbed, since the statistics vary quite a lot depending on how the data is analysed. A lot of women work in the agriculture sector, where the numbers are not efficiently captured and many also work in the informal sector, where data is not existent. There are differences of gender proportion in different industry sectors in South Africa and women are concentrated in rather low-paid sectors as agriculture, private domestic, health and education. Men are more evenly spread throughout all sectors. In general, female participation rates in the labour market have been on an increase, though (Fofana, 2005). Gender inequality is not only a topic for human rights activists. Gender inequality inhibits growth and particularly in developing economies there is a huge loss of growth opportunity. Better-educated women with more available resources also raise better-educated and healthier children, which has a positive impact on future generations and labour force. If women get additional income it has a greater positive impact on childrens health, than when men get additional income (Korinek, 2005). An investment in gender equality is therefore also an investment in social improvement and economic growth.

The Impact of FDI on Gender Equality In general it is difficult to conclude if women in South Africa have benefited from inward FDI or not. Wages might have increased and the access to employment improved, but that does not mean that the gender wage gap decreased. Many research papers found a rather positive impact of FDI on the female labour force in developing countries, but it highly depends on the economic situation of the country and the form of direct investment. The impact of FDI on womens work and development is significant in labour-intensive and largely export-oriented industries (Braunstein, 2006), but as mentioned above the majority of South Africas FDI inflows went into domestic oriented businesses. Exceptions are the investments in the light industries from Taiwan Province of China in the 1980s, which employed mainly women. Furthermore, the majority of foreign firms entered the South African economy for market-seeking purposes and not like in other developing countries to profit from abundant low-skilled and cheap labour. In these countries FDI and trade liberalisation in the early stages mainly benefits women due to the high share of female employment in these industries (Nords, 2003), but in South Africa this positive impact for women is less significant. In general FDI might have an impact on labour demand and thereby also positively affect wages due to higher bargaining power for employees. In addition, foreign firms very often pay higher wages relative to locally-owned firms (Braunstein, 2006). More competition in the local market due to foreign companies could also benefit women, because employers can just no longer afford to pay wage premiums on male workers due to their gender and therefore discriminate women (Nords, 2003). However, these impacts are probably also smaller in South Africa, since the proportion of acquisitions as market entry mode is very high compared to greenfield investments. Mergers and acquisitions do not necessarily create new job opportunities and the wage premium due to foreign ownership might be delayed. Furthermore, the benefits are mostly enjoyed by skilled workers (Braunstein, 2006), where women are again under-represented. If total wages increase due to direct investment women also benefit and experience an absolute boost, but wages for men will most probably increase as well and it has therefore no impact on the gender wage gap. A positive change in gender equality can happen, when investments mainly flow into industries, which employ more women than men. This is the case for many export sectors in developing countries, where the proportion of women is 53% - 90% (Korinek, 2005), but this did not have a significant effect in South Africa due to lower investments in these sectors. In the long term this might even be an advantage. These industries are even more exposed to the negative effects of capital mobility, since relocation and subcontraction is very cheap (Braunstein, 2006). Foreign-invested industries in labor-intensive and export-oriented sectors might move to other countries as soon as they can produce cheaper and more efficient somewhere else.

FDI in South Africa is less likely to help to narrow the gender wage gap and decrease gender discrimination. However, in a long-term perspective FDI should lead to economic growth, which will then improve the quality of public service and therefore gender discrimination in health and education should diminish (Aguayo-Tellez, 2011). With better education women can also profit more from benefits of inward FDI. Policy Implications The gender inequality is huge in South Africa and the need for policies to address this issue is strong. The state system in South Africa fails to meet the needs of the most marginalised women and despite their majority, women are still under-represented in the formal economy (Commission for Gender Equality, nd). Gender inequality hinders the whole economy to grow and achieve its potential. South Africa might fall behind other emerging economies, if they do not respond adequately to gender issues. Women should have full access to education and therefore be able to apply for higher-skilled jobs. The investment from companies into technology makes this even more important. Otherwise, the transfer from low-skilled jobs to high-skilled jobs due to technology benefits only men. Braunstein (2006) suggests that one of the most important things governments can do to strengthen the link between FDI and gender equality is social welfare support for women. Furthermore, companies could be required to hire a certain amount of women and provide them with training as a condition of market access. Seguino and Grown (2006) argue that the state should have a more important role in an economy to raise womens wellbeing in the export industry. For them a policy framework should support the productivity increase in female- dominated industries, promote strategic industries, which pay higher wages to employees and create demand-side management policies, which allow pursuit of full employment. In general productivity capacities of women and girls should be enhanced to allow them to be more competitive in the labour market. Conclusion The literature review showed that in general it is difficult to claim that women benefit from foreign direct investment. Their wages might increase but that does not necessarily lead to a smaller gender wage gap, which is still significant in many countries and in South Africa in particular. The biggest positive impact of FDI on gender equality can be observed in export- oriented industries, since the proportion of female-workers is much higher. South Africa has

experienced an increase of inward flows of FDI since 1994. These investments went mainly into domestic-oriented sectors and the preferred mode of entry was acquisitions, rather than greenfield investments and joint ventures. Furthermore, the motive behind the investments was more market-seeking than efficiency-seeking. All these characteristics of FDI in South Africa point to the fact that FDI probably does not have a positive impact on gender equality. Women still benefit from FDI due to economic growth in the country. However, FDI could help to narrow the gender wage gap, when certain policies are implemented. Gender inequality has to be eliminated in other important areas like health and education. When women get the same access to education than men, they have also better chances for higher-skilled jobs. The technology from foreign-owned companies and the technology spillover to domestic companies requires better-skilled employees and women should be able to benefit from this. Higher wages allow women also so strengthen their position at home where there is still a gender bias, as womens domestic work participation is higher than the one from men. A negative consequence for women earning higher wages could be a decrease of the competitiveness towards men. The export industries hire more women because employers often perceive them as more productive, but also because they are cheaper (Braunstein 2006). If womens wages become the same then mens they might be again discriminated due to other gender reasons and lose their jobs to male-workers. However, investment in women has a higher impact on overall long-term growth of an economy than investment in men, therefore closing the gender wage gap and eliminate gender inequality should be a main focus for the government in South Africa and also in other developing economies.


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