Foreign investors pull out R1-trillion
• Jitters lead to mass exodus from stocks and bonds in the past decade
Foreign investors have withdrawn a net R1-trillion from SA’s bond and equity markets over the past 10-and-a-half years —a situation that asset management firm Stanlib says was triggered by successive credit downgrades, the sharp deterioration in the country’s fiscal position, rampant corruption and the sustained decline of stateowned entities (SOEs).
President Cyril Ramaphosa is preparing to deliver the state of the nation address at the Cape Town City Hall on Thursday evening, when he is expected to reflect on a range of political, economic and social matters in the domestic and global spheres.
“Over the past 10 years, foreigners have withdrawn a total of $62.63bn from SA’s bond market ($11.25bn) and equity markets ($51.38bn), which has clearly hurt the investment returns generated by the country’s financial markets,” said Kevin Lings, Stanlib’s chief economist.
DISINVESTMENT
He added that using the prevailing exchange rate for each month over the past 10 years, the disinvestment by foreigners amounted to R984bn.
“If you include the final six months of 2013 in the calculation, or the net flows over the past 10-and-a-half years, the disinvestment exceeds R1-trillion,” he said.
“How much better off would SA have been if that R1-trillion had remained invested in SA’s financial markets?”
In its financial stability report released in May 2023, the Reserve Bank flagged the sale of SA bonds by foreigners as “a significant structural shift, especially considering the significant increase in government bonds issued during this period”.
In the same report, the Reserve Bank raised concerns about the capacity of SA investors to absorb new issuances of government bonds in future, saying this “raises financial stability concerns regarding market liquidity, increased volatility and [caused] higher domestic government bond yields”.
While the state of the nation address is not known for significant new policy announcements, Old Mutual Group chief economist Johann Els said they hope the president will be more specific on issues affecting economic policy reforms regarding energy, logistics, infrastructure growth and other areas where economic growth could benefit.
“It will also be a balancing act given many failures around the state and SOEs’ ability to provide services — and this is an election year,” Els said.
Lings said these macroeconomic issues, with the country’s successive credit rating downgrades, are reasons for the sustained foreign disinvestment in the past 10 years.
Other reasons for divestment
are the country’s weak economic growth —which is projected to be 1% in 2024, down from 1.8% previously as projected by the IMF — increased social unrest and rampant corruption.
Foreign investors also have alternative investment choices within a wide range of emerging economies, he said.
OUTFLOW
Using data from the Bank’s financial stability review, Lings said foreign portfolio investment remained negative in 2023, recording a net outflow of $7.12bn. That was the 10th consecutive annual withdrawal of foreign portfolio investment from the country.
“The decline in 2023 was dominated by a further withdrawal of foreign equity investment [amounting to] $7.25bn though foreigners invested only a net $0.12bn in SA government bonds,” Lings said.
But these outflows are reversible.
SOPHISTICATED
He added that SA has advantages over many other emerging economies, including an extremely well-run central bank that understands the importance of controlling inflation as well as a very sophisticated financial system that competes with the best in the world.
But these advantages are not nearly enough.
“Ultimately, there is no escaping the urgent need for the government to implement key economic and structural reforms that have been well documented, fully embrace the role of the private sector in partnering with government to alleviate key infrastructural constraints, and ensure that corruption is prosecuted,” Lings said.
“It is not a coincidence that the worst-performing economies in the world are also the countries with the highest levels of corruption.”