Finweek English Edition - - COVER STORY OFFSHORE INVESTING -

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

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