South Africa losing out 

South Africa is losing out on valuable investment to its African peers and will continue to do so unless the country can lift its economic growth. 

The country recently slipped to fourth in the RMB Invest in Africa regions, losing out to the Seychelles, Mauritius and Egypt. 

South Africa ranked first in only one category – forex stability and liquidity – while it lost the top spot in terms of economic output to Egypt. 

Worryingly for the future, it also came in last place on the continent regarding GDP growth forecasts, income inequality and unemployment. 

South Africa’s economy has been relatively stagnant over the past decade, hovering around 1% GDP growth annually. 

Standard Bank CEO Sim Tshbalala told Daily Investor that this will impact investment in South Africa and, if the slow economic growth continues, inevitably result in companies investing elsewhere. 

“We’re absolutely focused on total shareholder, absolutely focused on it and on managing our portfolio of businesses with discipline,” Tshabalala said. 

“Clearly, the fastest-growing parts of the African continent are the countries outside of Africa and, in particular, East Africa, which is growing at an annual rate above 5%.” 

“Therefore, you want to be allocating your capital to these faster-growing parts of your business for obvious reasons – to grow lending, insurance products, and making acquisitions.” 

Last year, Tshbalala explained that South Africa is in competition for capital, and slower economic growth will result in it struggling to win this competition. 

“The world competes for capital. We compete for the money we need to finance our nation’s budget deficit and compete globally for the money to finance infrastructure investment, fund Eskom and Transnet, and finance corporate projects.”

“We are competing on the continent and with emerging markets for this capital. So if they have decreased the risk of investing in their country and generated greater returns, the money will then rather go to those places than South Africa.”

The key factor is the rate at which the economy is growing. South Africa is expected to grow at just over 1% in 2023, while other African countries will average greater than 3% growth. 

“What does this mean? It means that we are losing our national competitive advantage. We need to grow faster and get people healthier and wealthier,” Tshabalala said

“Other countries are growing much faster. Where do you think that money is going to go? It is going to go to other countries and not South Africa.”

The graph below shows South Africa’s growth rate in comparison to its African peers, with Standard Bank’s home market experiencing a markedly slower uptick in growth in 2024. 

Tshabalala said all of this can change if the government implements its reform agenda speedily, and the entire investment landscape will shift. 

“There is a beauty in having a portfolio of countries. South Africa is an absolute giant in the portfolio.”

“You might say its economic growth is pedestrian, but if the country suddenly grows at 2% or 3% then the base is significantly bigger, and it makes sense to allocate more capital to the country.” 

“So, we are sanguine about this, and we are not religious about where growth is. We will pursue that growth, servicing our clients and providing them with solutions.” 

“The summary is that we will follow GDP growth and client activity. We will have strict discipline in how we allocate capital and keep going where we can grow the most.” 

Stanlib’s head of fixed-income investments, Victor Mphaphuli, released a research note last month detailing how things can change in South Africa to attract more investment and the impact this could have. 

While South Africa is not out of the woods, he said that Stanlib can already see some blue sky. 

“We believe that if the GNU can work together, it will reawaken the economy, which will make it possible to bring down the debt-to-GDP ratio, achieve fiscal consolidation and build for the future.”

Instead of growing at 0% to 1%, the economy can start to grow by 2% to 2.5%, protecting the currency and the fiscus.

A stronger currency delivers wealth effects for households as the GDP per capita increases and positively affects all asset classes.

For bond markets, there is potential for 10-year bond yields to fall to 10% or lower and for the rand to strengthen towards R17/$. 

If the economy delivers growth, investor confidence will improve over time, and businesses and asset managers will be encouraged to invest again in the domestic economy. 

Asset managers could even reallocate funds from offshore assets if they see better local opportunities. However, this will be a slow process as the country must demonstrate credibility along the way.

“This hopeful scenario is completely dependent on the longevity and effectiveness of the GNU. It demands that all those involved in it continue to work together for the betterment of South Africa.” 

“They have no choice. If they do not, history will judge them harshly, and the electorate will judge them even more harshly.”