JSE chief executive on investment and bright spots for South Africa

A number of factors, including a focus on macro-economic fundamentals and the work towards a Covid-19 vaccine, could draw funds back into the country, says JSE chief executive Leila Fourie.

Economists have warned that South Africa has now hit its ‘fiscal cliff’ as public sector remuneration, social assistance payments and debt-service costs have effectively absorbed government revenue.

In addition, the results of the third Quarter Labour Force Survey (QLFS) published by Stats SA last week has put South Africa’s unemployment rate at 30.8% – the highest recorded since 2008.

The unemployment figures stand at 43.1% on the expanded definition, which includes discouraged work-seekers who have given up looking for jobs.

Speaking in an interview with Bloomberg TV, Fourie said that some of the key fundamentals that need to be addressed by government include the country’s ‘fiscal cliff’, low-growth and the high unemployment rate.

“The minister of finance recently presented his medium-term budget speech where he has made substantial commitments and unprecedented constraints in public sector spending,” she said.

“There’s also an enormous focus on infrastructure investment into the country and many stock-specific opportunities present very attractive yield opportunities. In addition to that, the bond market yields relative to the underlying risk, play well above their equal counterparts.”

The country is set to hold its third annual investment conference this week where it will hope to attract further investment, an important task as capital continues to flood out of the country.

Bloomberg data shows that South Africa is on track for its largest yearly outflows of foreign money since it began tracking this information in the late 1990s.

International Monetary Fund data shows investment as a percentage of South Africa’s gross domestic product has been in decline since 2016 and the lender forecasts that the ratio will reach a record low of 13% this year. That compares with 25.4% in Nigeria and 21.5% in Angola.

Vaccine

In addition to a local economic recovery, the international progress made towards a coronavirus vaccine could be a boon for South Africa.

Pharmaceutical companies Pfizer and Moderna have both posted successful vaccine trial results, boosting markets around the world.

Emerging-market stocks and currencies posted two week of gains at the start of November as news of a vaccine breakthrough added to optimism fuelled by the outcome of the US elections.

However, the gains were tempered as the week went on by a surge in global coronavirus infections. Central banks said a vaccine won’t end the economic problems caused by the pandemic.

Fourie said that the introduction of a vaccine will be very important for global markets and that will have a ‘compounding effect’ on South Africa.

“South Africa has fared pretty well under the constraints of the pandemic. We have recently completely opened up our economy and relative to other emerging markets we are doing well.

“The news of a vaccine will flood in interest and crowd in development market funds into emerging markets and the risk appetite will lift, and South Africa is well poised as an investment destination.”


Read: What to expect from South Africa’s interest rate decision this week

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JSE chief executive on investment and bright spots for South Africa