South Africa has dropped off the map for investors: economist
Economist at Economists dot coza, Mike Schussler says that foreign investors have lost interest in South Africa, and are opting to take their money to other destinations in Africa.
In a column published on Thursday, Schussler said that investors he engages with as part of is business are consistently asking about investment opportunities in other African countries like Angola and Nigera – while almost completely disregarding South Africa.
The response, Schussler said, was that South Africa was simply not drawing any interest anymore – a point that has been corroborated by hard data from reports by the IMF and World Economic Forum.
According to Schussler, direct foreign investment (FDI) in South Africa has dried up to a point where local companies are now more invested in international markets, than international markets are invested here.
Expressed as a percentage of GDP, at the end of 2017 the net FDI was -31% as a percentage of GDP – the negative value showing the balance of investment lies outside of South Africa.
In total, South Africa has invested R3.3 trillion in foreign markets, while foreign markets only have R1.8 trillion invested here, meaning there is a balance of R1.5 trillion invested elsewhere.
This is counter to almost every other emerging market economy, Schussler said.
What can be done
According to Schussler, the trend can be reversed, but it will take work – and more than just the positive sentiment around the new leadership in South Africa.
“Spending tax money more wisely; jailing corrupt leaders; reducing the toxic racial atmosphere; easing regulations and closing state enterprises that require tax money year after year.
“Lowering the cost of transport; communications; water and electricity while fixing roads, and infrastructure – (these) are minimum requirements,” the economist said.
But over and above these tough asks, are even more difficult requirements, he said.
Notably, the government wage bill would need to be reduced by a third (as a percentage of GDP) – at a time when civil servants are demanding increases of over 10%. It would also require easing the tax burden to make the country a more attractive investment destination.
“If South Africa just improved slightly, it would make a difference and certainly the improvement in business confidence, and consumer confidence are a good start,” Schussler said.
Read: 3 things every South African investor should know right now
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