South Africa can go from zero to hero following the formation of the Government of National Unity (GNU), which has significantly shifted investor sentiment towards the country. <\/p>\n\n\n\n
Prior to the election at the end of May, South African assets were coming under immense pressure from foreign and local investors dumping stocks and bonds. <\/p>\n\n\n\n
The GNU has given investors a rare chance to be positive about South Africa\u2019s political trajectory and the economic policy of the government. <\/p>\n\n\n\n
Over the past three decades, the ANC-led government has failed to deliver a market-friendly president and consistently implement growth-boosting reforms. <\/p>\n\n\n\n
\u201cWhen a government borrows, it has to use that money for industrialisation and infrastructure to stimulate economic growth, create much-needed jobs and generate revenue to repay that debt,\u201d the head of fixed-income investments at Stanlib, Victor Mphaphuli, said. <\/p>\n\n\n\n
\u201cInstead, it spent its borrowings on building a patronage economy, with ANC support bolstered by expanding social grants and wage increases for a ballooning public service, including SOE employees. As a result, South Africa\u2019s debt-to-GDP soared.\u201d<\/p>\n\n\n\n
As a result, S&P downgraded South Africa\u2019s credit rating to junk status in 2017, followed by Fitch and Moody\u2019s in 2020. <\/p>\n\n\n\n
Junk status refers to a country being sub-investment grade. This prohibits many large pension funds from investing in the country\u2019s financial assets. <\/p>\n\n\n\n
Foreign investors dumped South African bonds, with their share falling from 44% to 25% of the total issuance. <\/p>\n\n\n\n
This made borrowing more expensive for the government and South African corporates. In 2012, the country\u2019s average bond yield was 8.5%. As bonds were sold off, yields rose to 13% during the Covid-19 crisis. <\/p>\n\n\n\n
Today, the debt-to-GDP ratio is over 70%, and the government is turning to austerity measures to prevent further escalation.\u00a0<\/p>\n\n\n\n
However, the formation of the GNU has resulted in local assets rallying strongly amid investor optimism that a more market-friendly government will reignite the South African economy. <\/p>\n\n\n\n
In an interview with Daily Investor, Standard Bank CEO Sim Tshabalala said the bank is very optimistic about South Africa\u2019s future and has seen a noticeable increase in interest from foreign investors. <\/p>\n\n\n\n
Tshabalala explained that things are already improving in South Africa, with reform processes in the electricity and logistics sectors already underway. <\/p>\n\n\n\n
This has resulted in over 145 days without load-shedding and positive signs at Transnet regarding the export of minerals and its rail network. <\/p>\n\n\n\n
South Africa\u2019s financial markets have responded strongly to the election result, which was more positive than many anticipated. <\/p>\n\n\n\n
The rand is trading around 6% stronger than it did before the election, with the JSE All Share has hit a new all-time high and is up over 12% since the end of May. <\/p>\n\n\n\n
Investors are also more positive about the financial health of the country, with the 10-year bond up 17% since its pre-election lows. <\/p>\n\n\n\n
Tshabalala also explained the findings of a survey regarding the opinions of foreign investors done by Standard Bank\u2019s macroeconomic research department. <\/p>\n\n\n\n
81% of foreign investors surveyed said they were either positive or very positive about the outcome of South Africa\u2019s election. <\/p>\n\n\n\n
More importantly, 95% of respondents suggested they are planning to or considering increasing their investments in South Africa in the next few years. <\/p>\n\n\n\n
Tshabalala also said South African corporates are on the front foot and are actively looking to grow their businesses rather than merely investing to stay operational. <\/p>\n\n\n\n
\u201cAs the government continues to execute its structural reforms, business confidence will improve and investment will follow. This will have a positive impact on GDP, and we will support it.\u201d <\/p>\n\n\n\n
South Africa\u2019s economy will also be boosted in the coming months by interest rate cuts, which will free up disposable income. <\/p>\n\n\n\n
As consumer confidence picks up, interest rates are cut, inflation comes down, and the country\u2019s economic growth will pick up. <\/p>\n\n\n\n
This will create a chance for South Africa to enter into a virtuous cycle, leading to a period of sustained economic growth.\u00a0<\/p>\n\n\n\n