South Africa is ‘spiralling’ – and investors are taking note
South Africa is facing major reputational damage as foreign investors keep their money out of the country.
Founder and Executive Chairman of Sygnia, Magda Wierzycka, told SABC News that South Africa has started to “spiral downwards” in what can be called ‘State capture 2.0’.
Wierzycka said that optimism around President Cyril Ramaphosa and his solid economic policy to pull the country out of high unemployment and a flat economy has proven naive.
She said that the country is facing increased unemployment and more severe load shedding – all while consumers rely on their savings to survive.
Critical infrastructure is also in a state of disrepair, with the recent cholera outbreak in Hammanskraal a dire example, she noted, having previously warned that municipalities – the backbone of the country – were collapsing, making South Africa a failed state.
Wierzycka added that through several diplomatic failings and the recent Russia arms saga, the domestic currency has crashed to record lows – negatively affecting imports.
Adding to the pile, the exec pointed out that South Africa has also been greylisted, further damaging its reputation and likely leading to capital outflows.
Investors steer clear
Over the course of this year, roughly R200 billion worth of South African government bonds have been sold. At the same time, the rand, over the last decade, has lost 39% of its value – becoming the worst-performing emerging market currency in the process.
Fund managing firm DFM Global noted recently that capital outflow from foreign investors has accelerated due to volatility in South Africa and a lack of an obvious reward for investing in the country.
On 19 May, South Africa’s rand plummeted to its weakest point on record at R19.52 to the greenback following sustained load shedding, downward revised GDP forecasts and the US embassy accusing the country of arming Russia.
Financial giant JPMorgan forecasts recession in the country and projects a 0.2% decline in South Africa’s GDP for this year. While local economists are waiting to see more quarterly data, they have noted that a full-year recession is a very real possibility.
According to Wierzycka, the country may also be on the brink of falling victim to foreign sanctions that would add to the inability of the country to build up its economy as foreign countries seize trade and limit the country’s access to financial markets.
Sygnia Founder and Chair, Magda Wierzycka
Losing shine
Although she previously backed Ramaphosa in competition with former president Jacob Zuma, Wierzycka said things have worsened under his administration.
The Sygnia chair called on the private sector to take a stand and be more vocal about the current situation.
Wierzycka is not the first to raise concern over Ramaphosa and his constituency’s failings to keep South Africa financially alive. Business communities at large have reported increasing disaffection with Ramaphosa’s administration, with many believing the country is going nowhere fast.
One of the most felt sore points for the country is load shedding, which – despite continued focus by the government and the appointment of a new electricity minister whose sole mandate is to bring an end to rolling blackouts – is only expected to get worse.
Coronation Fund Managers believes that while initiatives are being implemented, “unacceptable energy deficits will continue in the decades ahead“.
In its short-term prediction for the coming winter, Eskom said that if the power outages exceed 18,000MW, stage 8 load shedding would be implemented.
The company’s goal is to keep outages below 16,000MW, ranging between stage 3 and stage 5 load shedding. However, Eskom has struggled to consistently maintain outages at these levels.
Business groups have accepted the likelihood of stage 8 load shedding in the coming months, meaning that there will be no power for roughly half of the day, with 16 hours of scheduled outages within a 32-hour timeframe.
Despite all the current failings in South Africa, the government has travelled across the globe in an attempt to sell the country to investors. On 19 May, the deputy minister of finance spoke at the launch of Rand Merchant Bank in the US, noting that South Africa rewards investors who see its potential.
“While many have predicted its demise over the years, it has proven them wrong every time,” said David Masondo, the deputy minister of finance.
He said that South Africa remains well-positioned to be an entry point into the African continent.
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