South Africa desperately needs foreign direct investment (FDI) for economic recovery. That was shown during the previous boom, when the current account deficit ballooned and was funded mainly by portfolio flows.

As was again shown when the financial crisis struck in the second half of last year, portfolio flows are inherently fickle and unreliable. This is just one reason why BMW South Africa's plan to invest 2.2 billion rand (275 million US dollars) to lift capacity and improve technology at its Rosslyn plant is important. It should come as a great relief to the South African government, trade unions and employees.

It also looks almost miraculous, considering the dearth of investment elsewhere in the economy and chronic dithering by government. The lack of FDI is especially upsetting given that South Africa has recently gone through an unusually long expansion during a historic commodities boom.

Projects in areas such as South Africa's Coega have moved along at an agonizingly slow pace; some have disappeared. FDI in mining has been minimal, mainly because of high costs, regulatory uncertainty and government interference. Multinationals are slashing investment plans or selecting the most attractive markets, which do not necessarily include South Africa.

At the same time, most of the world's motor industry has been in crisis. Vehicle sales collapsed and there is huge overcapacity. What used to be unthinkable, the bankruptcy of General Motors, occurred earlier this year. Tens of thousands of motor workers have been laid off globally.

All this greatly complicates the decisions facing multinationals such as BMW when they must consider whether to invest in South Africa or elsewhere. Sentiment can play little part. And companies cannot tolerate frustrating delays while government considers what ground rules to apply and keeps making new proposals. Decisions have to be made quickly.

Yet delay is what international vehicle manufacturers based in Germany, Japan and elsewhere are facing in South Africa.

When cost structures, productivity, inflation and the small local market are considered, South Africa's claims to offer a competitive base for international car firms are already limited.

Without previous government backing, including clarity about policies and official guarantees, much of the local industry almost certainly would not exist. Unless these are forthcoming soon, the industry could wither.

South African government incentives for the motor industry have had controversial elements and have provoked debates about protectionism. But in terms of sustaining an industry, the measures have mostly worked in the past, as shown by the continued presence of BMW, Volkswagen, Toyota and others.

Under President Jacob Zuma's government, industrial policy has become more fluid and unpredictable, or just slow to emerge. The motor sector is being frustrated by the South African department of trade and industry's inability to provide details of the new automotive production and development program (APDP), which will come into effect in 2013.

Every decision by a multinational not to invest in South Africa, or even to delay doing so, is a disaster. FDI is important as South Africa badly needs reliable inflows of capital to help create economic growth and jobs.

The country also needs to maintain and build its skills base. It needs to have access to the latest technology and to strengthen its international ties. South Africa also needs to diversify its economy, so that it becomes less dependent on commodities.

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