**1. Introduction**

Trade involves the transfer of goods or services from one person or entity to another, in exchange for money. A system or network that allows trade is called a market. There are two types of trade, namely, retail trade and wholesale trade. Retail trade involves the sale of goods from a very fixed location such as a store, in small or lots, to a purchaser, while wholesale trade is defined as traffic in goods that are sold as merchandise to industrial, commercial, institutional or to other wholesalers.

Investment is defined as the current commitment of resources in order to achieve later benefits. If resources and benefits take the form of money, investment is the present commitment of money for the purpose of receiving money later. In some cases, such as the purchase of a bank certificate of deposit, the amount of money to be obtained later is known. However, in most situations, the amount of money to be obtained later is uncertain [1].

In a report which was recently released by Statistics South Africa [2], under the "Environmental Economic Accounts Compendium", it was estimated that the country has 239 years of platinum-group metals (PGMs) reserves, while coal has 118 years of reserves available, and that there are only 38 years with regard to the amount of gold resources remaining [3]. The report also indicated that in the mining industry, gold was once the biggest employer; however, this all changed in the year 2006 when PGMs took the lead [4].

PGMs are made up of six essential metals, namely, platinum, palladium, osmium, ruthenium and iridium. These are considered to be the important raw materials. PGMs play a significant role in the manufacturing process as they are used in commercial applications and the production of different technologies such as computer hard drives, monitors and medical tools and are also used in industrial processes. PGMs are said to also play a huge role in the automotive sector [5].

Policymakers have frequently discussed the link between oil prices and exchange rates in recent years, particularly the idea that an appreciation of the US dollar triggers a dip in oil prices [9]. Empirical research is not so clear on the direction of causation, as there is evidence for bidirectional causality. For example, some studies find that an increase in the real oil price actually results in a real appreciation of the US dollar, while others show that a nominal appreciation of the

The reverse relationship between the value of US dollar and that of gold is one of the most discussed about relationships in currency markets, and most of the international transactions take place in dollar equivalent. The major reason behind the relationship of gold and USD/INR exchange rate is that gold is used as a hedge against the adverse exchange value of dollar. As the dollar's exchange value decreases, it takes more dollars to buy gold, which increases the value of gold. The value of dollar can be at a potential risk of fluctuation through various factors like shifts in monetary policy, international trade, etc., but the value of yellow metal is largely determined by supply and demand, without interference from shifts in monetary and corporate policies. Therefore, there is a need to investigate the influ-

The previously mentioned information demonstrates that in supreme terms, South Africa's appeal has improved; however, in contrast with other developing countries, South Africa has not been attracting FDI. The question at hand then is "what method can South Africa use to draw more FDI?" This is a very important question, in light of the fact that FDI can play a major role in the continent's development. FDI can fortify household speculation, encourage innovation exchange, make business, advance fares and, most importantly, produce financial growth. The part of FDI as a wellspring of wealth is especially critical in South Africa, in a setting where net official development assistance (ODA) to the country

To fill the gap identified, this chapter seeks to understand the nature of the relationship between FDI, oil price and exchange rate in order to investigate the determinants of FDI for South Africa. It investigates the drivers of FDI using the vector error correction model (VECM) approach. There is a need for knowledge dissemination and culture change to enable innovation and collective problemsolving, only then will the investment flow with the creation of sustainable

This chapter is organized as follows: Section 2 discusses related works. Section 3

discusses the research methodology, while Section 4 discusses the analysis and results. The conclusion and recommendations are discussed in Section 5.

The South African mining sector has contributed positively to the country's economy, specifically impacting the increase in employment and GDP through trade. The mining industry has played an important role in the contribution to civilization and human existence [10]. Mining is considered to be the second earliest human endeavour, while agriculture is considered the first. To date, these two industries have continued to play an important role in the economy since the beginning of civilization [10]. Mining is not and has not always been the only major contributor to the economy as the manufacturing industry was considered to be the

US dollar triggers decreases in the oil price.

*Trade and Investment in South Africa*

*DOI: http://dx.doi.org/10.5772/intechopen.87186*

ence of exchange rate and oil on attracting FDI.

employment and economic growth.

**2.1 Mining production and sales**

**2. Related works**

**15**

declines.

PGMs contribute greatly to South Africa's mining production. It has been seen over the years that the performance of PGMs has either a positive or negative effect on the performance of other minerals and mining production as a whole. A decline in the production of PGMs has led to the increase in the production of other commodities and vice versa.

It is evident that in South Africa, there is a tendency of over-reliance on certain minerals, such as PGMs, and as a result, this leads to other minerals not performing as well as they should. The mining in South Africa is not performing as well as it used to many years ago; however, it is still considered to be the country's most important employer. It was reported that in the year 2007, the mining sector employed 493,000 workers [6]. In South Africa, the well-known minerals that are mined include platinum, gold, coal and iron ore. South Africa is commonly known for its commodities. However, according to a recent mining report, the PGM industry has the largest number of employees, and this is followed by the gold and coal industries [2]. It is evident that gold production is not performing as well as it used to when mining practices began.

Disruptions or unforeseen situations such as industrial actions or strikes negatively impact industries such as the mining industries. An example of this was in the year 2014 when the South African mining production decreased, and this was caused by strikes which occurred in the sector. According to Stats SA [3], the decline in mining production was mainly caused by the decline in PGMs as a result of strike. The industrial action lasted slightly 5 months during that year.

Since over-reliance on PGMs has adverse results from instability, investigation of the determinants of foreign direct investment (FDI) in growing the economy is important. Investigating the drivers of FDIs will help the country or investors in monetary gain by making informed decisions.

FDI can be explained as when an organization or individual in a particular country is interested in another country's business, either building up business operations or procuring business resources in another country, for example, proprietorship or controlling enthusiasm for an outside organization. FDI includes capital streams starting from one country to another, conceding broad proprietorship stakes in local organizations and resources. Foreign investment signifies that foreigners have a significant role in the administration of a certain country as part of their investment. In simple terms, it can be said that foreign direct investment is a major form of international capital transfer.

Over the previous decade, developing countries around the globe encountered generous development in their economies, with considerably faster development in global exchanges, particularly in the type of FDI. The net offer FDI of world gross domestic product (GDP) has developed more than five times in both the 1990s and the early twenty-first century, making the results and causes of FDI and monetary development a subject of regularly developing intrigue [7].

According to [8] gold, oil and the exchange rate have received much attention recently from investors, traders, policymakers and producers, partly because of the recent flare up in their prices, increases in their economic uses and synchronization of their movements. Their relationships have even attracted the attention of lay persons.

### *Trade and Investment in South Africa DOI: http://dx.doi.org/10.5772/intechopen.87186*

PGMs are made up of six essential metals, namely, platinum, palladium, osmium, ruthenium and iridium. These are considered to be the important raw materials. PGMs play a significant role in the manufacturing process as they are used in commercial applications and the production of different technologies such as computer hard drives, monitors and medical tools and are also used in industrial processes. PGMs are said to also play a huge role in the automotive sector [5]. PGMs contribute greatly to South Africa's mining production. It has been seen over the years that the performance of PGMs has either a positive or negative effect on the performance of other minerals and mining production as a whole. A decline in the production of PGMs has led to the increase in the production of other

It is evident that in South Africa, there is a tendency of over-reliance on certain minerals, such as PGMs, and as a result, this leads to other minerals not performing as well as they should. The mining in South Africa is not performing as well as it used to many years ago; however, it is still considered to be the country's most important employer. It was reported that in the year 2007, the mining sector employed 493,000 workers [6]. In South Africa, the well-known minerals that are mined include platinum, gold, coal and iron ore. South Africa is commonly known for its commodities. However, according to a recent mining report, the PGM industry has the largest number of employees, and this is followed by the gold and coal industries [2]. It is evident that gold production is not performing as well as it

Disruptions or unforeseen situations such as industrial actions or strikes negatively impact industries such as the mining industries. An example of this was in the year 2014 when the South African mining production decreased, and this was caused by strikes which occurred in the sector. According to Stats SA [3], the decline in mining production was mainly caused by the decline in PGMs as a result

Since over-reliance on PGMs has adverse results from instability, investigation of the determinants of foreign direct investment (FDI) in growing the economy is important. Investigating the drivers of FDIs will help the country or investors in

FDI can be explained as when an organization or individual in a particular country is interested in another country's business, either building up business operations or procuring business resources in another country, for example, proprietorship or controlling enthusiasm for an outside organization. FDI includes capital streams starting from one country to another, conceding broad proprietorship stakes in local organizations and resources. Foreign investment signifies that foreigners have a significant role in the administration of a certain country as part of their investment. In simple terms, it can be said that foreign direct investment is a

Over the previous decade, developing countries around the globe encountered generous development in their economies, with considerably faster development in global exchanges, particularly in the type of FDI. The net offer FDI of world gross domestic product (GDP) has developed more than five times in both the 1990s and the early twenty-first century, making the results and causes of FDI and monetary

According to [8] gold, oil and the exchange rate have received much attention recently from investors, traders, policymakers and producers, partly because of the recent flare up in their prices, increases in their economic uses and synchronization of their movements. Their relationships have even attracted the attention of lay

of strike. The industrial action lasted slightly 5 months during that year.

commodities and vice versa.

*Regional Development in Africa*

used to when mining practices began.

monetary gain by making informed decisions.

major form of international capital transfer.

persons.

**14**

development a subject of regularly developing intrigue [7].

Policymakers have frequently discussed the link between oil prices and exchange rates in recent years, particularly the idea that an appreciation of the US dollar triggers a dip in oil prices [9]. Empirical research is not so clear on the direction of causation, as there is evidence for bidirectional causality. For example, some studies find that an increase in the real oil price actually results in a real appreciation of the US dollar, while others show that a nominal appreciation of the US dollar triggers decreases in the oil price.

The reverse relationship between the value of US dollar and that of gold is one of the most discussed about relationships in currency markets, and most of the international transactions take place in dollar equivalent. The major reason behind the relationship of gold and USD/INR exchange rate is that gold is used as a hedge against the adverse exchange value of dollar. As the dollar's exchange value decreases, it takes more dollars to buy gold, which increases the value of gold. The value of dollar can be at a potential risk of fluctuation through various factors like shifts in monetary policy, international trade, etc., but the value of yellow metal is largely determined by supply and demand, without interference from shifts in monetary and corporate policies. Therefore, there is a need to investigate the influence of exchange rate and oil on attracting FDI.

The previously mentioned information demonstrates that in supreme terms, South Africa's appeal has improved; however, in contrast with other developing countries, South Africa has not been attracting FDI. The question at hand then is "what method can South Africa use to draw more FDI?" This is a very important question, in light of the fact that FDI can play a major role in the continent's development. FDI can fortify household speculation, encourage innovation exchange, make business, advance fares and, most importantly, produce financial growth. The part of FDI as a wellspring of wealth is especially critical in South Africa, in a setting where net official development assistance (ODA) to the country declines.

To fill the gap identified, this chapter seeks to understand the nature of the relationship between FDI, oil price and exchange rate in order to investigate the determinants of FDI for South Africa. It investigates the drivers of FDI using the vector error correction model (VECM) approach. There is a need for knowledge dissemination and culture change to enable innovation and collective problemsolving, only then will the investment flow with the creation of sustainable employment and economic growth.

This chapter is organized as follows: Section 2 discusses related works. Section 3 discusses the research methodology, while Section 4 discusses the analysis and results. The conclusion and recommendations are discussed in Section 5.
