HOW DO FOREIGN INVESTORS VIEW SA?
South Africa has managed to stand its ground in a number of key global indices measuring competitiveness, investment prospects, and even corruption despite more than a year of political turbulence which culminated in the axing of former finance minister Pravin Gordhan.
This could be due in part to the fact that foreign investors generally take a more sanguine view of the country’s challenges than their South African counterparts, who are often notoriously more negative about the future.
Or it could reflect the fact that most of these measures of SA’s business environment and prospects lag reality and do not yet take into account the two credit rating downgrades that followed President Jacob Zuma’s shock Cabinet reshuffle at the end of March.
Eyebrows were raised at the end of April when AT Kearney announced that the country had made it back into the business consultancy’s Foreign Direct Investment (FDI) confidence index after a two-year absence, although it ranked 25 out of 25 countries, compared with a ranking of 13th in 2014.
SA’s re-entry to the index was spurred by a surge of direct investment into the country last year – according to figures from the Reserve Bank’s latest quarterly bulletin, it jumped to R33.5bn, up from R22bn in 2015.
But the survey of global business executives was carried out in January and would therefore not have taken into account the negative consequences of Zuma’s reshuffle or the events which followed.
It would also not have taken cognisance of controversial remarks by economist and academic Chris Malikane, an adviser to finance minister Malusi Gigaba.
Malikane sparked an outcry by saying that the Constitution should be amended to allow nationalisation and expropriation of land without compensation, and that an armed struggle might be necessary to fully transform the economy.
Gigaba quickly moved to distance himself from those remarks, saying that the economic policies which have won SA credibility in global financial markets in the past two decades would not change. But South Africans are not convinced.
In his State of the Nation Address in early February, Zuma revived the call for “radical economic transformation”, which he said was the answer to poverty, inequality, and the lack of inclusivity in SA’s economy.
Three months later it is still unclear what the president meant, although the slogan has been regularly bandied about in the upper echelons of the country’s political circles.
Nonetheless, SA also ranked second in the 2017 Africa Attractiveness Index released by global consultancy firm EY last week. FDI projects in the country rose by almost 7% last year, taking more than a fifth of the continent’s total, it pointed out.
And the country came fourth in the Africa Investment Index released last month by Quantum Global Research Lab, the independent research arm of Quantum Global, an international group of companies involved in private equity investments and management.
To top it all off, Transparency International said in January that the country’s score in its Corruption Perceptions Index improved from 44
to 45, although its rank in relation to all 176 countries included dipped three points to 64 – a respectable level.
Local Transparency International chapter Corruption Watch executive
director David Lewis cautioned that with a score of less than 50, SA was still among countries with a serious corruption problem.
“Had the survey not been conducted before several serious corruption episodes came to the attention of the public, for example the shocking State of Capture report, our position may well have deteriorated significantly,” he said.
Investec Asset Management fund manager Rhynhardt Roodt said that SA had to be viewed in the context of other emerging markets to gauge its attractiveness to international investors.
“Offshore investors look more favourably on SA than domestic investors. We tend to think our news is worse than they do – other emerging markets have issues and warts too,” he said.
But there are bad omens on the horizon. The Institute for International Finance reports that FDI flows into SA amounted to $1.7bn in the first quarter of 2017 – less than half the $3.6bn received in the same period of 2016.
The Institute for International Finance reports that FDI flows into SA amounted to $1.7bn in the first quarter of 2017 – less than half the $3.6bn received in the same period of 2016.
Chris Malikane Economist and adviser to the finance minister