Over the last decade, foreign investors have been dumping South African assets, having withdrawn an estimated R1 trillion over the period – and self-inflicted economic ills are mainly to blame.
BusinessDay reported that Stanlib’s chief economist Kevin Lings valued the outflows over the 10 years to be around $62.63 billion from SA’s bond market ($11.25 billion) and equity markets ($51.38 billion), which has clearly hurt the investment returns generated by the country’s financial markets.
Lings added that, when considering the relevant exchange rate for each month over the past 10 years, the disinvestment by foreigners amounted to R984 billion.
“If you include the final six months of 2013 in the calculation or the net flows over the past 10-and-a-half years, the disinvestment exceeds R1 trillion,” he said.
Asset management firm added that these prolonged withdrawals were triggered by successive credit downgrades, the sharp deterioration in the country’s fiscal position, rampant corruption, and the sustained decline of state-owned entities (SOEs).
The South African Reserve Bank (SARB) seems to agree with Stanlib and said the prolonged sell-off was driven by concerns over the escalating Middle East conflict, poor domestic and global economic growth, and the impact of load-shedding in South Africa.
Unsurprisingly, investment inflows and outflows have a significant impact on the South African economy.
A research paper from the SARB’s Economic Research Department economists revealed the effect of net investment outflows on the South African economy.
In their paper, SARB economists established a strong correlation between investment and economic growth, emphasising South Africa’s dependence on foreign investments to compensate for its poor savings rate.
The Reserve Bank first noted its concerns in its Monetary Policy Review, flagging that South Africa experienced significant outflows from foreign investors in the first half of 2023.
The share of non-residents’ holdings in total listed shares witnessed a notable decline, dropping from a high of 40% in March 2023 to 29.8% in November, it said, showing a trend that investors are continuing to pass on South African bonds and assets.
The SARB attributed the significant outflows to local structural economic issues and geopolitical tensions of the country’s own making – much like those highlighted by Stanlib economists.
Unfortunately, there are still dangers that the disinvestment may continue onto the first and second quarters of 2024 due to the upcoming national elections, which are set to be the most competitive since the dawn of democracy, and some expect the ANC to lose its majority.
Reserve Bank Governor Lesetja Kganyago and other experts have identified the elections as a key threat to the nation’s economic stability.
As Kganyago explained in a recent City Press interview, “Politicians adopting a populist tone ahead of the vote could create uncertainty among foreign investors, discouraging investment in South Africa.”