It would seem simplistic to pronounce that South Africa continues to be an attractive investment destination.
But it is an important statement given that political rhetoric in terms of the economy is often cited as an absolute in terms of its influence over potential investment decisions and overall impact on the markets and currencies.
The truth of the matter is - and statistics from independent bodies backs this up - that it is not all doom and gloom in terms of South Africa’s economic health.
Writing for Forbes recently (May 9) Allan Eberhart, a professor of finance and founding director of the Master of Science in Finance Programme at Georgetown University’s McDonough School of Business, wrote: “my recent travels remind me of the benefits of investing in South Africa for both index and active investors. While the following three reasons for investing in the country pertain to index investors, they may also inspire active investors to consider South Africa.”
He highlights the socio-economic and political challenges, but encouraged investors to: diversify their portfolios by looking at an offshore opportunity like South Africa; that investing in countries that look risky in isolation can actually lower the riskiness of an investor’s portfolio; and that “South Africa ranks high worldwide for investor protection and the extent of disclosure”.
“For example, if an international market is overvalued, then the diversification benefit of investing in that market can be offset by the unjustifiable price premium investors must pay. This possibility is minimised with investments in South Africa given the efficiency promoting characteristics of the country’s financial markets.”
Eberhart points out that “when the US stock market was down 22% in 2002 following the Dotcom Bubble and the 9/11 terrorist attacks, the South African stock market was up 49% (both indices come from Datastream and are based on US dollars)”.
South Africa picked up second place in the Africa Competitiveness Report and the country’s global ranking for 2016-2017 improved with nine places - from 56 in the 2014-15 report to 47 out of 138 countries worldwide, Brand South Africa reported.
The sectors in which South Africa excelled included financial market development, business sophistication, innovation and technological readiness.
South Africa was reported to have also made a comeback in the 2017 AT Kearney Foreign Direct Investment (FDI) Confidence Index, and was ranked as the fourth most attractive investment destination in Africa according to the Africa Investment Index 2016 by Quantum Global’s independent research arm, Quantum Global Research Lab published last month.
Recently, African Business Magazine reported “investment in the automotive industry, both from established international manufacturers and the new Chinese brands, is at record levels, while the country’s shipyards are producing a wide range of vessels. Perhaps most notably, Transnet has fulfilled a long-held ambition of producing the first locomotive to be entirely designed and manufactured in Africa”.
The property sector has grown year-on-year.
SA Commercial Prop News reported that “investment volumes in South Africa’s real estate saw a 55.2% increase in 2016, despite economic challenges, weak currency and political uncertainty”.
Real estate consulting firm, JLL SSA’s 2016 Investment Review of the South African property market with analysis showed a R28.8bn increase in investment, from R18.5bn in 2015, and a similar 52.8% increase in gross lettable area.
Recently, Boston Consulting Group MD Adam Ikdal, commenting on investment in South Africa was reported as saying: “Right now people are uncertain. When we talk to clients - international clients wanting to invest in South Africa - the first question they ask us is what does radical economic transformation mean and how likely are aggressive policies to come from government going forward?
“There are a lot of people who would like to invest in South Africa but are now sitting on the fence until they can get a better understanding of what radical economic transformation actually means.
“Investors are quite clinical in the way they look at things. They see the rhetoric, but now they are going to look at what is going to be implemented in the next budget cycle.”
It is a cheap shot to tack all our economic and investment challenges at the door of a socio-political ambition to address alarming rates of poverty and unemployment. Investment always comes with risk and a certain degree of uncertainty.
For Ikdal to suggest that uncertainty arose out of the government’s pronouncement on a radical economic transformation agenda, is churlish at best and disingenuous at worst.
As cited previously in this piece, investment continues to flow into South Africa and there are those like the US professor quoted who continue to promote South Africa as a potentially lucrative investment destination.
In a piece in Bloomberg in April, George Herman, Citadel’s director and chief investment officer, points out: “In turbulent times such as these, it is essential to remain calm and objective, and not to become embroiled in such emotional judgements. Ask yourself: were South African bonds “junk” 10 days ago? No. Has our probability of default increased meaningfully since then? The answer, again, is no.”
Reactionary outbursts and irresponsible statements about how much risk South Africa is as an investment is not what the country needs.
Sober heads need to prevail if we are to move forward and develop into an economy which does look after the interests of all who call South Africa home.