Institutional quality as a possible catalyst in South Africa's electricity supply and FDI nexus

For most developing countries, energy reliability has remained a persistent challenge throughout the last few decades. Energy reliability challenges—loadshedding, in this case, has been a phenomenon since 2008 in South Africa and peaked in 2023 when the country experienced 6950 hours of load shedding in a single year. Like many developing countries, South Africa's government uses foreign direct investment to increase development within their economies; however, electricity supply challenges hinder the country's attractiveness to foreign direct investment. Adequate institutional quality conditions can assist in both improving electricity supply and market attractiveness. This study assesses the relationship between electricity supply and inward foreign direct investment in the presence of good institutional quality conditions. A structural Bayesian VAR is used in the study to obtain impulse response functions that indicate the presence of favourable institutional conditions initially have a positive effect on electricity supply. The improvement in electricity supply then results in a positive impact on inward foreign direct investment.