FDI inflows into SA rebound by $3.2bn in 2017

Sweet news for Cyril Ramaphosa in Davos

SOUTH Africa has made a notable recovery in foreign direct investment (FDI) inflows, with Unctad saying yesterday that offshore investment channelled into the region’s most industrialised economy rebounded by 43 percent in 2017 to $3.2 billion (R38.65bn).

This is despite a flurry of worries over the country stemming from the much-publicised state capture corruption scandal and policy uncertainty arising out of the country’s mining and other policy frameworks.

Part of the political uncertainty appears to be easing with ANC leader and Deputy President Cyril Ramaphosa seemingly poised to take over from President Jacob Zuma. Zuma is slated to leave office in December, but could go at any moment as pressure inside the ANC for him to leave early ratchets up.

The Global Investment Trends Monitor released by Unctad yesterday showed South Africa’s FDI inflows rebounding would have come as sweet news for Ramaphosa, who is leading a team of business leaders and government officials at the World Economic Forum in Davos.

“South Africa had a notable recovery in FDI, although flows remained low by historical standards,” Unctad said in its report.

Gary van Staden, an analyst at NKC African Economics, said that “the new ANC administration will be more encouraging to foreign investors than” the current position on the existing leadership of the government.

South Africa’s growth in FDI inflows came amid nearly stagnating investment inflows across Africa, which fell 1 percent in 2017 to $49bn.

In 2016, South Africa’s investment inflows rose 38 percent to $2.4bn, although the Unctad World Investment Report released in July 2016 had showed FDI flows sagging by more than 60 percent to a 10-year low of $1.8bn at the time.

Risk premium Experts say a rally of about 11 percent in the rand against the greenback since December “gives an idea of the kind of risk premium foreign investors attach to South Africa” arising out of the country’s political uncertainty.

Confidence will rebound significantly once the political risk factor is addressed, they add.

In November last year, S&P Global Ratings downgraded South Africa to BB “due to its weakening economic and fiscal trajectory”.

This month, the ratings agency said after downgrading South Africa last year, the country’s outlook was stable, “whereas the previous ratings carried a negative” outlook.

“Foreign investors who track (the Citigroup World Government Bond Index) would then be forced to sell out” should rating agency Moody’s downgrade South Africa after the Budget speech, said Izak Odendaal, an investment strategist at Old Mutual.

Moody’s rates South Africa at investment grade, although “it wants to see fiscal consolidation (smaller deficits) and growth enhancing” reforms, adds Odendaal.

The FDI inflows into South Africa lagged Egypt, whose flows declined 14 percent to $6.9bn, while the resource-heavy Democratic Republic of Congo saw a 29 percent increase to $1.6bn.

FDI inflows into Nigeria declined 24 percent to $3.4bn, while flows to Angola were 20 percent down at $3.3bn.

“Harmful macro-economic effects of the commodity bust were still being felt in some countries although commodity prices have started to rise again,” added Unctad.