South Africa bleeds over R1 trillion in foreign investment
Old Mutual chair and former finance minister Trevor Manuel says that foreign investors have disinvested more than R1 trillion over the past ten years, directing the funding into competing markets.
This has been driven by eroded confidence in South Africa amid various government-driven crises and investors looking for regulatory certainty and effective execution.
“Foreign investors disinvested more than a trillion rand from South African equities and bonds over the past decade… [with that money] being redirected to competing markets that appear to be on a more sound governance and regulatory footing,” Manuel said.
Old Mutual’s chief executive officer, Iain Williamson, echoed this, saying that “in recent years, investor trust and confidence in Africa has eroded, and… in South Africa, the ongoing energy crisis, logistical challenges across our ports and railways, and service delivery challenges remain key constraints to economic growth.”
This is coupled with the long-lasting effects of state capture and the continued impact of corruption in the country, which has led to both institutional weakening and subsequent distrust in the system.
“The effects of state capture continue to be felt in all spheres of South African society [and] while there has been an effort to restore the institutions and rebuild the economy, more work is necessary to eradicate corruption completely and regain institutional strength,” said Manuel.
Outflows in Old Mutual
Old Mutual’s gross flows improved by 3% to R32.81 billion; however, the company reported a negative net client cash flow of R11.97 billion (up 55% from the previous year).
The company said this increase was largely due to a shift from a major offshore investor, leading to R7.8 billion outflows.
This is coupled with increased withdrawals from money market funds driven by client liquidity needs in a tough economy, challenges in the South African pension fund market, and mandatory benefit payments.
“Liquidity requirements in a tough operating environment resulted in outflows from a number of large clients across both local and offshore platforms, coupled with lower treasury advisory inflows,” said Old Mutual.
“High inflation and interest rates and an ongoing confidence crisis continue impacting consumers,” it added.
What is needed to ease investor nerves
Both Manuel and Williamson said that whilst inroads can be made through partnerships across the private sector, public sector and civil society – regaining investment trust requires policy certainty and stability.
“It is crucial that regulators adopt a pragmatic approach, striking a balance between fiscal requirements and providing clear regulations and long-term regulatory certainty,” said Manuel.
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