South Africa risks falling behind

The head of Investec South Africa is backing calls for changes to Basel III rules that govern capital requirements for banks globally to even the playing field for lenders.

The US, Europe and the UK have differing approaches to the rules, which has imposed a steep cost on banks that operate in developing markets, said Cumesh Moodliar, CEO of the South Africa- and UK-listed lender.

Emerging-market lenders already have to hold more capital than their developed-nation peers and pay more for debt because of the perceived higher risks of African projects, he said.

“It’s really key that banks work off the same playing field internationally,” he said in an interview on Bloomberg Television.

“My concern would be that we sit in a situation where potentially emerging-market financial institutions carry a heavier capital burden than some of the developed-market counterparts, and that would be restrictive to trade, development and economic growth.”

Moodliar’s views align with those of Standard Bank CEO Sim Tshabalala, who says changing some Basel III rules would unlock more money for infrastructure investment in African markets.

Standard Bank — Africa’s biggest lender by assets — estimates that the continent needs $170 billion annually for infrastructure and can only raise $85 billion currently.  

Tshabalala is head of a task force on finance and infrastructure for the B20, which represents business interests within the Group of 20 and has proposed changes to the rules.

“For stability, for international trade and for competitiveness, it would be very, very helpful to have a level of consensus and also a level of capital requirement that allows particularly developing markets and easier access into into the international trade flow,” he said. 

Meanwhile, Moodliar is urging South Africa to speed up much needed reforms to capitalize on the positive sentiment generated by a low inflation environment and declining interest rates. 

“We really need to continue moving with speed in terms of some of these public-private partnerships to unlock the rail and port corridors, to become really globally market competitive,” he said.

Years of underinvestment, graft, theft and vandalism have hurt the performance of state-owned ports and rail company Transnet — factors that have become a major drag on the country’s economic growth as shipments of coal and iron-ore have hit multi-decade lows.

In August, the government shortlisted 11 private companies to operate on the nation’s freight-rail network from the year starting April to help tackle logistics bottlenecks.

The country’s removal from the Financial Action Task Force’s dirty-money list, its first credit-rating upgrade in 20 years, and the expectation of a third straight year of primary budget surpluses that will help reduce debt-service costs has buoyed investor sentiment, he said.