BMW’s investment stop could signal the consequences for all South African economy image

After four weeks of output stop at its only factory in South Africa due to worker strike, BMW lost 13,000 cars in production, missed supply plans on several export contracts and took the decision to stop expansion in the country.

The strike at factories owned by seven global carmakers cost the industry somewhere above 20 billion rand ($2 billion) in revenue, according to the National Association of Automobile Manufacturers of South Africa, or Naamsa.

Soon, the damage to the economy could take a turn for the worse as foreign investors, beleaguered by the continued labor unrest,  threaten to scale back expansion plans as labor instability still worsens – with BMW being just the tip of the scale.

“BMW has clearly had enough of the labor situation and the risk/reward of further investment simply doesn’t make sense for them,” Peter Attard Montalto, an economist at Nomura International Plc in London, said in a e-mailed note to clients. “There are many other companies thinking the same thing because of labor issues.”

South Africa currently needs the cash investment coming from abroad as it helps finance its current-account deficit, which totaled 6.5 % of the country’s GDP in the second quarter alone. Most of that foreign capital has been arriving  in the form of stock and bonds investment, inflows that can become highly volatile as global sentiment fluctuates.

Via Bloomberg