Standard Bank is investing more of its capital outside its home market in South Africa as the country’s economy stagnates while other African economies boom.
This is feedback from the CEO of Africa’s largest bank by assets, Sim Tshabalala, in an interview with CNBC Africa.
“We are allocating our capital at Standard Bank to the fastest-growing parts of our business. The fastest growing parts are outside of South Africa,” Tshabalala said.
South Africa’s economy has stagnated in the past decade, while its government debt has skyrocketed and its population has boomed. This has resulted in a decline in living standards for South Africans.
Tshabalala said parts of Africa are on a much more positive trajectory as they have implemented reforms and have made it easier to do business.
Countries that are doing well in Africa, he explained, are those that have implemented fiscal discipline, liberalised their economies, and have made it easier for goods, people, and ideas to flow.
By implementing these reforms, they have successfully reduced the risk premium associated with investing in their countries.
He said this does not mean the bank will not invest in South Africa. “We believe in the African continent and in South Africa. We are investing and will continue to invest because of the vast opportunities.”
“South Africa will be alright. I am very excited for the next ten years in South Africa.”
For South Africa to kickstart its economy, it needs to make it easier to do business by making the state more efficient.
“Please improve the quality of our institutions. In the case of South Africa, we use the lovely phrase ‘Please capacitate the public sector’.”
“There are parts of the public sector that are excellent, such as the National Treasury and the Reserve Bank. Replicate what is happening in those across the board,” Tshabalala said.
“Please capacitate the state,” he repeated. “Please professionalise it. Please continue to make doing business easier.”
Tshabalala’s comments at Davos echo those he made last year when he warned that South Africa was losing out to Africa.
Tshabalala explained that South Africa is in global competition with its African counterparts and other emerging markets for scarce capital to drive economic development.
“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.”
The biggest factor in attracting capital is the country’s risk premium, which dictates the returns an investor should expect for taking on the risk of investing in a given country.
This directly impacts a country’s ability to raise capital and the companies that operate in it.
As this premium increases, which it has in South Africa, it makes it more difficult to attract investments in local businesses and finance the government’s deficit.
“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,” Tshabalala said.
The key factor is the rate at which the economy is growing. South Africa is expected to grow at less than 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.
A richer population will also generate more capital to invest locally and drive further economic growth.
“We are growing at 0.8%. 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 biggest impediments to South Africa’s economic growth are an unstable electricity supply, logistical inefficiencies, and crime and corruption.