International Investor Perceptions and the Nation Brand - Views from China. Brand South Africa Research Note. By:

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1 Research Note International Investor Perceptions and the Nation Brand - Views from China By: Dr. Judy Smith-Höhn, Ms. Leigh-Gail Petersen, Mr. Thabelo Mbedzi

2 Contents 1. Introduction 1 2. Country Brand Health Funnel Familiarity Favourability Trust and advocacy 3 3. Key Industries associated with South Africa 4 4. Key (Un)Attractiveness Features of South Africa among Chinese Investors Investor Concerns Investor Appeal 6 5. Investor Communication Sources of information Preferred method of receiving information 8 6. The Nation Brands Index: Chinese perceptions of the Nation Brand 9 7. Enhancing Country Reputation: One lesson from and for Investors 11 Figures and Tables Figure 1: The Country Brand Health Funnel 2 Figure 2: Level of Familiarity with South Africa among German respondents 2 Figure 3: Overall Impression of South Africa among Chinese respondents 3 Figure 4: Trust and Advocacy levels 4 Figure 5: Industries Chinese investors associate with South Africa 4 Box 1: Top 3 concerns deterring Chinese investors from conducting business in South Africa 5 Box 2: Top 3 characteristics that make South Africa attractive to invest in 6 Figure 6: Top Five Sources of Information about South Africa 7 Figure 7: Preferred method of receiving information 8 Figure 8: How China ranks South Africa on the six dimensions of the NBI Table 1: SA s Score Changes on Immigration/Investment & Governance by Panel Countries 10

3 1. Introduction s mandate requires the organisation to clearly understand the reputation, competitiveness, and perceptions of South Africa in key international markets. As part of its approach towards achieving this mandate, draws insights from its international investor perceptions research as well as the Nation Brands Index, an independent research survey conducted annually by Anholt-GfK Roper. These two sources of information assist in developing, among others, its strategy for engaging in the relevant markets. The International Investor Perceptions study is geared towards understanding investor perceptions of South Africa as a country with which to do business. Brand South Africa appointed IPSOS, a recognised market research company, to implement the study. Research was carried out in 16 markets, including a number of African markets as well as our BRICS partners. Interviews were conducted with individuals with decision-making power or influence within their companies when it came to exploring international business opportunities. The Anholt-GfK Roper Nation Brands Index is an annual survey that measures the image of 50 nations according to six elements: Governance; Exports; Tourism; People; Culture; and Investment & Immigration. The 2016 NBI survey has been conducted in 20 major developed and developing countries, with at least 1,000 interviews per country. The sample included adults aged 18 or over, and it was weighted to be representative of online populations according to age, gender and education. In the U.S., the UK, South Africa, India and Brazil, race/ethnicity was also included for sample balancing. Both projects provide with valuable insights on key issues that impact positively and negatively on South Africa s reputation in select markets. This Research Note will hone in on the Chinese market and provide an overview of perceptions of Chinese investors of South Africa as a country with which to do business. It concludes with a brief snapshot of Chinese perceptions of the South African Nation Brand as surveyed by the Nation Brands Index. 1

4 2. Country Brand Health Funnel A key component of s Investor Perceptions survey is the Country Brand Health Funnel, which measures the country s reputation according to levels of awareness, familiarity, favourability, trust and advocacy. Figure 1 below illustrates the logic behind measuring these attributes and the way in which they contribute to overall reputation: Figure 1: The Country Brand Health Funnel What follows now is an illustration of perceptions of Chinese investors around each of these attributes and the extent to which they would endorse South Africa as a country, particularly as one with which to do business Familiarity When asked how well they knew South Africa, 6% of the Chinese respondents said they knew South Africa extremely well, and just above a third (34%) said they knew the country fairly well, while 60% reported that they knew the country a little. Figure 2: Level of Familiarity with South Africa among Chinese respondents 2

5 2.2. Favourability When asked to take into account all the information they had heard or come across about South Africa, almost half (48%) of the respondents had a favourable impression of the country. Only 4% had an extremely favourable impression and a big proportion of respondents were ambivalent: 46% had a neither favourable nor unfavourable impression of South Africa with only 2% having an unfavourable impression of South Africa. The survey shows that overall, Chinese investors have a neutral impression of South Africa and are not that familiar with the country. Figure 3: Overall Impression of South Africa among Chinese respondents Of those questioned, 50% are currently conducting business in South Africa, while a good 40% of respondents were considering doing business in the country. This points to the need to lobby and network with those Chinese investors who are currently operating in, and who evidently have a positive impression of, the country. For it is they who can influence the large portion of those who are undecided (i.e. those who opted for neither favourable nor unfavourable ) and advocate for South Africa as an attractive business destination Trust and advocacy The survey also gauged levels of trust and advocacy among respondents, asking them to state how likely they are to express certain sentiments about South Africa. Questions asked included how likely they were to visit the country for business, how likely they were to admire South Africa, or how likely they were to recommend South Africa as a country to invest in. Figure 4 below illustrates the extent to which Chinese investors would advocate for South Africa according to the select criteria: 3

6 Figure 4: Trust and Advocacy levels The figure above shows that South Africa scores highest for respect South Africa (top two box score of 78%) and visit South Africa for business (70%). 3. Key Industries associated with South Africa Respondents were also asked which industries they associated with South Africa, and in the case of China, the mining and quarrying industry is by far the one the country was most closely associated with (66%). Figure 5: Industries Chinese investors associate with South Africa Mining and quarrying Hospitality, hotels, restaurants and tourism Manufacturing Agriculture, hunting, forestry or fishing Construction and infrastructure Transport, storage or communication Financial, insurance, real estate or business services Wholesale or retail trade Health and health service equipment Other Don't know None Q7. Thinking of South Africa, which industries do you associate with the country? (n=50) 4

7 This insight is useful insofar as it provides the country with information about the industries it is considered to be strong in, with a view to potentially leveraging on that strength to build its reputation. It also identifies industries the country is less well known for, and points to areas where more work is required should South Africa wish to enhance its reputation in a sector that is relatively less prominent. 4. Key (Un)Attractiveness Features of South Africa among Chinese Investors In order to manage country reputation, it is essential that one understands what makes a country appealing to potential investors, as well as what concerns them. Such perceptions matter be they based on experience or hearsay as they influence decisions on whether or not to conduct business in any given setting Investor Concerns For this reason, the survey asked respondents what would prevent them from doing business in South Africa in particular. In the case of Chinese respondents, the high crime rate was the single biggest issue deterring investors from doing business in South Africa, while political instability was also noted as an area of concern. Box 1: Top 3 concerns deterring Chinese investors from conducting business in South Africa Ø Lack of security/safety/high crime rate 36% Ø Political unrest/instability 16% Ø Unfriendly people/xenophobia/racism & discrimination 10% * Note: This was an open-ended question, designed to encourage respondents to list their concerns without being influenced or guided towards any particular answer. The perception of political instability is an interesting one, particularly if one compares South Africa to a country like Thailand. The latter has a history of military intervention in politics since the end of the absolute monarchy in 1932, witnessing a total 12 coups in that period. Yet this persistently unstable political situation has done little to weaken or dampen the country s investor appeal. In fact, in the latest Anholt-GfK Roper Nation Brands Index report, Thailand is ranked higher than South Africa both on the Governance dimension as well as on the Investment & Immigration. This raises a number of questions, among others whether attention to the political goings-on is skewed towards certain countries, whether questionable assumptions 5

8 are made about social unrest as being a sign of political instability, and even whether there is something South Africa can learn from Thailand in terms of remaining attractive despite perceived challenges in the domestic environment. Moreover, in the case of Chinese investor perceptions, perhaps the fact that South Africa is a less familiar environment than a closer neighbour like Thailand is what makes investors more risk averse. Yet another angle to consider is the role of the media in shaping perceptions of a country. Is the reporting balanced and well-researched; or is it skewed and sensationalist in order to make news? Reporting around the flare up of tensions between African immigrants and South Africans in 2015 is a case in point. While detailed media reports on the incidents were abound and rightly so very little was reported about the resounding and sustained mobilisation of civil society groups, business and ordinary citizens against these acts of violence at the time. This is not to say that these acts of violence were not deplorable. But it is to question why the overwhelming response from many fronts, demonstrating their support for foreign residents who had fallen victim to violence, was not given much attention in the media. For, what these reports did was to profile South Africans as unwelcoming and violent, yet there was no question that the extent and pace of the relief efforts would not have been possible without a strong community activation and a positive attitude towards fellow citizens and foreign, particularly African, residents Investor Appeal In addition to needing to understand investor concerns, knowing what makes a country an attractive investment destination allows the leveraging of strengths that can be banked on to enhance country reputation and promote investment. When asked what made South Africa an attractive country to invest in, Chinese respondents noted a broad array of factors, with no single feature standing out significantly as making investment in South Africa appealing. That said, the sound economy and availability of raw materials were two characteristics that were mentioned most often. Box 2: Top 3 characteristics that make South Africa attractive to invest in Ø Strong/stable/growing economy/sound economy 12% Ø Availability of raw materials/resources 12% Ø Stability: political/government/country 6% * Note: This was an open-ended question, designed to encourage respondents to list all features that came to mind without being influenced or guided towards any particular answer. 6

9 5. Investor Communication As the country s official marketing agency, one of s primary responsibilities is to develop and implement proactive and coordinated marketing, communication and reputation management strategies for South Africa. An understanding of the sources stakeholders rely on when seeking information about a country as an investment destination or trade partner is key to developing an effective communications strategy, as is knowing the formats stakeholders prefer to receive information in. This assists in tailoring its messaging and packaging information about the Nation Brand in formats most appropriate for the targeted market. Furthermore, these insights can also serve other entities, such as the Department of Trade and Investment or the Department of International Relations and Cooperation, by providing recommendations on the most appropriate channels to use when communicating with their stakeholders Sources of information Figure 6 below shows that Chinese respondents rely most on trade shows and exhibitions when seeking information about the country as an investment destination or trade partner. Colleagues or business associates with experience in South Africa are the second most common source of information. This implies that when seeking to attract future investors to South Africa from China, and other government entities would do well to ensure that the country s presence at trade shows are prioritised where these investors are expected to attend. Moreover, Chinese investors surveyed indicated that they would also appoint local South African expertise when seeking information about the country as a business destination. Hence, relevant SA business actors as well as Chinese businesses already operating in the country should be lobbied as potential advocates for the country as an attractive investment destination. Figure 6: Top Five Sources of Information about South Africa 7

10 5.2. Preferred method of receiving information As mentioned above, another important objective of the research was to understand how best to communicate with stakeholders in a targeted market. Here sought to understand which of the three key platforms it currently uses to communicate with its stakeholders are the most appropriate when relaying information to potential investors about South Africa as an investment destination or trade partner. In the case of Chinese investors, 42% preferred to receive information via one-onone meetings, 40% preferred to attend roundtable session or seminars and 18% preferred to read research papers. The preference for verbal communication channels is likely also related to language. It is presumably easier for Chinese investors to attend meetings and roundtables with a language interpreter than it would be for them to pick up a written report (e.g. in English) to inform themselves about investment opportunities in this particular setting. Figure 7: Preferred method of receiving information Unlike other markets such as Germany and the UK, where respondents showed the little interest in attending roundtables or seminars (10% and 4%, respectively), the figures above show that Chinese investors appear to prefer attending roundtables and have discussions in one-on-one sessions than receiving analysis papers on South Africa as a country with which to do business. These findings can provide guidance to entities such as when planning their engagements with stakeholders in the Chinese market, particularly those from the business environment. 8

11 6. The Nation Brands Index: Chinese perceptions of the Nation Brand tracks a wide variety of indices, reputation indicator studies, and commissioned research to monitor the nation brand s competitiveness and reputation standings. The Anholt-GfK Roper Nation Brands Index (NBI) is one such instrument through which we track nation brand reputation. 1 As a subscriber to the NBI, receives a detailed analysis of the country s image and reputation according to six pillars that make up the Nation Brand Hexagon, namely 1) Governance, 2) Exports, 3) Tourism, 4) People, 5) Culture, and 6) Investment & Immigration. Figure 8 below provides a snapshot of perceptions of Chinese respondents of the South African nation brand according to these six dimensions. It includes their ranking of the country among the 50 countries in the Index in all the sub-indicators. Figure 8: How China ranks South Africa on the six dimensions of the NBI 2016 Improved since 2015 Dropped since 2015 Ranking unchanged é ê 1 The NBI measures the reputation of 50 countries in total. The 2015 NBI survey was comprised a total of 20,342 interviews with at least 1,000 interviews per country. 9

12 While China s overall ranking of South Africa on the 2016 NBI Report remains unchanged from last year (42/50), Figure 8 above reveals a number of gains made by South Africa in terms of its standing in among Chinese respondents, particularly in the Investment/Immigration and Governance dimensions. South African society has been stigmatized by past history, evidenced by low opinions of South Africa s Immigration and Investment opportunities. The latest NBI Report may, however, denote a pivoting point with perception gains particularly in China and Japan regarding South Africa s quality of life, an increased desire of global citizens to live and work in South Africa, concern for equality in society, and academic reputation. These are all areas that help drive the larger-than-average gains for South Africa s Immigration and Investment reputation this year. Table 1 below shows how China scores South Africa on Immigration/Investment and Governance Culture compared to nine other panel countries surveyed by Anholt- GfK Roper for the Nation Brands Index, including South Africa. These insights are useful insofar as they can be corroborated with the findings from some of the markets targeted in s in-house investor perceptions survey. Table 1: SA s Score Changes on Immigration/Investment & Governance by Panel Countries Total China Brazil France Germany India Japan Russia South Africa United Kingdom United States Nation Brands 0,36 2,61 2,25-0,22 0,63 1,53 1,66-2,72-2,45-0,76-0,25 Immigration/Investment 0,45 3,57 1,88 0,30-0,60 1,54 2,91-2,12-2,98-0,90 0,07 I&I-Work&Live 0,04 0,22 0,15-0,05-0,20 0,09 0,21-0,14-0,24-0,14 0,17 I&I-Quality of Life 0,02 0,20 0,05 0,06 0,19 0,02 0,10-0,27-0,18-0,05-0,01 I&I-Educational Qualifications 0,06 0,21 0,26 0,12 0,01 0,08 0,18 0,02-0,13-0,06-0,03 I&I-Invest in Business 0,00 0,26 0,09-0,06-0,15 0,10 0,18-0,07-0,21 0,01-0,01 I&I-Equality in Society 0,02 0,19 0,02 0,01-0,02 0,18 0,21-0,18-0,13-0,03-0,11 Governance 0,69 3,47 2,08 0,05 1,97 2,84 0,75-3,85-1,49-1,80-0,64 Gov-Competent&Honest -0,01 0,08 0,07-0,03 0,13 0,07 0,03-0,24-0,06-0,22 0,05 Gov-Rights&Fairness 0,07 0,38 0,14 0,05 0,12 0,19 0,07-0,11-0,10 0,01-0,04 Gov-Peace&Security 0,05 0,15 0,18-0,08 0,06 0,13 0,03-0,25 0,07-0,16-0,08 Gov- Environment 0,04 0,19-0,03 0,06 0,08 0,20 0,02-0,26-0,23 0,00-0,08 Gov-Poverty 0,06 0,24 0,25 0,02 0,22 0,27 0,08-0,30-0,13-0,19-0,04 Note: The cells are colored using Excel conditional formatting. Green show positive changes and red negative changes. Source: Anholt-GfK Roper NBI 2016 Report, December

13 In addition to highlighting the improved perceptions Chinese respondents have of South Africa s Immigration/Investment dimension, Table 1 also reveals South Africa s improved performance on the Governance dimension of the NBI. 7. Enhancing Country Reputation: One lesson from and for Investors This Research Note has provided a snapshot of Chinese perceptions of the Nation Brand. In addition to providing a sense of the level of familiarity and favourability of Chinese investors with South Africa as a business destination, among others, it has also highlighted the industries with which South Africa is most readily associated. The mining and quarrying industries are top of mind, explaining why South Africa is valued for its natural resources. The hospitality & tourism sector comes second and manufacturing a very weak third. At the same time, the majority of respondents interviewed for the investor perceptions survey were in the manufacturing sector (64%). These numbers are a reflection of the well-document trade asymmetries, both in levels and structure, between the two countries. South Africa exports mainly natural resources to China, while imports from China are primarily of manufactured goods, particularly consumer and capital goods. 2 Moreover, South Africa runs a growing trade deficit with China. South African policymakers have issued their concern over this trade imbalance and highlighted their intention to promote the beneficiation of raw materials at source. Progress has been slow, but there are positive developments in the carmanufacturing sector, particularly from China, with the Beijing Automotive International Corporation announcing the development of an R11 billion auto plant in South Africa. The Chinese state-owned entity is building the plant in partnership with South Africa s state-owned Industrial Development Corporation. The majority of the plant s output will be earmarked for export mostly to the continent. If South Africa wishes to build on this positive trajectory and attract more Chinese companies to do business here, it will need to address the concerns for personal safety and security highlighted by the research. The improvements in the Governance dimensions of the nation brand are an indication of a potential positive shift in perceptions. The development of a promising strategy to manage country reputation requires deeper knowledge, not only about the perceptions of potential foreign investors, 2 See for example Laurence Edwards and Rhys Jenkins, The impact of Chinese import penetration on the South African manufacturing sector, Southern Africa Labour Development Research Unit, UCT, Working Paper Series No. 102,

14 traders and visitors, but also about the broad set of factors that contribute towards reputational capital. This unique empirical research contributes to that body of knowledge, and hopefully provides not only food for thought, but cause for action. For, as Simon Anholt notes: (I)t s important for countries to understand that simply bragging about their beauty, their prosperity, their resources or their achievements cannot create a reputation. These days, places are more than ever judged on the contribution they are perceived to make to the shared challenges which people face all over the world, no matter where they live: climate change, economic crisis, poverty and inequality, ( ), and so on: the list of shared challenges is a long one, and any country that is able and prepared to make the concerted effort necessary to really move the needle on one or more of these issues is virtually assured of improving its international standing, to the lasting benefit of its trade, tourism and the respect in which its people and institutions are held around the world. - The Anholt-Roper Nation Brands Index 2016 Report s Research Notes and Research Reports communicate findings from research and related panel discussions. The Research Notes and Reports are intended to elicit comments, contribute to debate, and inform stakeholders about trends and issues that impact on South Africa s reputation and overall competitiveness. Views expressed in Research Notes are those of the author(s) and do not necessarily represent those of Brand South Africa, or the Government of the Republic of South Africa. Every precaution is taken to ensure the accuracy of information. However, shall not be liable to any person for inaccurate information or opinions contained herein. Contact Dr Petrus de Kock General Manager Research - petrusd@brandsouthafrica.com Dr Judy Smith-Höhn- Research Manager judys@brandsouthafrica.com Ms Leigh-Gail Petersen Researcher leigh@brandsouthafrica.com Mr Thabelo Mbedzi Research Intern thabelom@brandsouthafrica.com 12