Identifying the determinants of outward foreign direct investment decisions of South African retail enterprises investing into Africa

Abstract

Orientation: Whilst Africa is a lucrative market with many opportunities for all types of retailers, expanding into the continent is not without its own challenges. Therefore, foreign direct investors have to make strategic decisions.

Research purpose: The main aim of this article was to identify the determinants of outward foreign direct investment (FDI) decisions of five major South African retail enterprises with a significant FDI footprint in Africa.

Motivation of the study: Although there has been a robust expansion in the South African retail sector outward FDI and that of Africa in general, the empirical literature on retail sector outward FDI from the perspective of African countries is sparse. In fact, most of the retail sector outward FDI research in existence has been focussed on developed countries, with little attention being paid to developing countries.

Research design, approach and method: This research article stems from a study conducted by Chizema, which investigated the motivation of South African retailers who are making inroads into the rest of Africa. By using a mixed-method research technique, this article identifies the determinants of outward FDI decisions of five major South African retailers with a substantial FDI footprint in Africa.

Main findings: For all the retailers considered in this article, the most significant push determinants were identified as market-seeking, efficiency-seeking and ownership advantages. Similarly, the most significant pull determinants were identified as market size, political and macro-economic stability, profitability and growth prospects, and trade and investment openness. The results also revealed that the risk of investing in the African retail sector is commonly centred on the lack of infrastructure, political uncertainty and bureaucratic procedures.

Practical and managerial implications: The knowledge emanating from this article may assist in shaping the outward FDI decisions of prospective retail and other multinational enterprises (MNEs) contemplating to invest in Africa. It may also assist in influencing the design and implementation of policies aimed at attracting FDI in the African continent.

Contribution/value-add: This article seeks to contribute to the knowledge base and to inspire debate on the retail sector outward FDI from the perspective of African countries.