Author: Vishnu Padayachee, Imraan Valodia.

Prior to 1994, there were two broad views on potential inflows of foreign direct investment (FDI) into South Africa. The one view expected that large inflows would quickly follow the resolution of the political conflict, while the other took a more skeptical view on potential FDI, emphasizing the mobilization of domestic savings and the restructuring of the local capital market (Padayachee 1995). In this short paper, we examine trends in foreign investment inflows into South Africa, focusing our attention on Malaysian investment - an important example of growing South-South economic links. We attempt to explain the reasons behind the emergence of Malaysia as a key source of foreign direct investment into South Africa. We argue that, unusually, political considerations appear to be a major determinant of the surge in Malaysian investment in South Africa. We reflect briefly on the impact of the recent crisis in East Asia on future Malaysian investment to South Africa. Before concluding, we make some general observations about the relevance of the Malaysian model to development in South Africa.