South African investors are sending more money overseas than ever before

New research from US research and analytics group, Real Capital Analytics (RCA), shows how South African-based investors are putting more money in foreign markets than ever before – with outbound investment four times larger than money coming into the country in 2018.

According to the group, “the gulf between investment activity in South Africa and overseas spending by South African investors has never been greater”, with the trend likely to continue in 2019.

“On the back of weaker-than-expected domestic economic growth in the first quarter of 2019, it’s likely that investors will continue to explore overseas exposure,” it said.

International activity overtook domestic investment in 2016 and since then the gap between overseas and domestic spending has widened significantly, the group’s data showed.

Meanwhile, domestic acquisition volume fell more than 50% between 2017 and 2018 as listed entities pulled back and became net sellers.

“Institutional investors, meanwhile, have remained net acquirers and international players have stayed away. Spending by cross-border investors in South Africa remains negligible — typically less than 5% of annual investment activity,” it said.

South African-based investors sent about $4.9 billion overseas in 2018 (roughly R68.5 billion).

60% of the money was invested in retail, and close to 20% into each of the office and industrial sectors.

“All the cross-border investment for the year took place in Europe, with 30% focused on Poland and 17% into the UK,” RCA said.

JSE-listed property groups were the biggest buyers, with RCA noting that Redefine, Vukile and NEPI Rockcastle topped the list.

The largest deal was the purchase of a Spanish retail asset portfolio by Vukile Property Fund for R7.66 billion from Unibail-Rodamco.

The largest single asset deal was the acquisition of the Riverbank House property in London for R7.4 billion by Oxygen Asset Management, on behalf of South Africa’s Zeno Capital. This was also one of the biggest transactions in UK capital in 2018, RCA said.

Investment drive

These levels of capital outflow highlight the challenges faced by president Cyril Ramaphosa and the South African government in its drive to draw investment back into the country.

On the back of his election as president of the country, Ramaphosa has pushed an investment drive looking to draw $100 billion (R1.4 trillion) into the country over five years.

On the political front, the president is facing friction from the Public Protector, whose findings that Ramaphosa lied to Parliament and violated the constitution is chipping away at his public image of being anti-corruption and spur political uncertainty.

On the economic front, South Africa is creaking under the pressure of creeping economic growth (projected at between 0.6% and 1.0% in 2019), along side crumbling state institutions which increasingly need government intervention.

This includes the likes of Eskom – currently South Africa’s biggest liability – which could easily eat away half of Ramaphosa’s investment target just to break even – while South African Airways, the SABC, Denel, Sanral and many others wait in the wings.

“Given slowing transaction activity and the shrinking economy, cap rates may rise and present a buying opportunity. Investors will be reassured if the government can fulfil its objective of boosting economic growth while consolidating the country’s fiscal position.

“For now though, the capital flows are outbound,” RCA said.

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South African investors are sending more money overseas than ever before