Foreigners have pulled R1-trillion from SA in 10 years

Foreign investors have withdrawn a net R1trillion from SA’S bond and equity markets over the past 10-and-a-half years.

Asset management firm Stanlib says this was triggered by successive credit downgrades, the sharp deterioration in the country’s fiscal position, rampant corruption and the sustained decline of state-owned 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“Over the past 10 years, foreigners have withdrawn $62.63bn from SA’S bond market ($11.25bn) and equity markets ($51.38bn), which has clearly hurt the investment returns generated by the country’s financial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

Using the prevailing exchange rate for each month over the past 10 years, the disinvestment by foreigners amounts 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 be a balancing act given many failures around the state and SOES’ ability to provide services and this is an election year,” Els said.

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.

Lings said the outflows are reversible.