The rise and fall of South Africa in one graph 

Foreign investors have been dumping South African equities for the past decade, and the billions invested from 1994 to 2010 have almost completely disappeared. 

Stanlib economist Kevin Lings explained that foreign investment can be seen as an indication of a country’s economic fortunes. 

Increasing foreign investment tends to indicate better economic performance and can create a positive feedback loop: Strong economic growth results in increased investment, which, in turn, drives further growth. 

Lings explained this at Stanlib’s recent InPerspective Roadshow, which outlined some of the country’s major challenges and their effect on investor sentiment. 

Many of South Africa’s challenges are self-inflicted, with consistent underinvestment in infrastructure as the chief economic constraint. 

Underinvestment in infrastructure can be best seen in Eskom’s inability to provide a reliable electricity supply, with Transnet’s logistical bottlenecks a close second. 

This has resulted in economic stagnation, with South Africa’s economy only growing at an annual rate of 0.8% for the past decade. 

However, this was not always the case, as the country experienced strong economic growth in the early 2000s. 

Lings divided South Africa’s economic story since 1994 into three phases: the first from 1994 to 2011, the second from 2011 to 2016, and the third from 2016 to the present day. 

Over these three phases, local equities have experienced a significant shift in foreign investor interest, indicative of the country’s economic fortunes. 

From 1994 to 2011, South Africa’s democratic government focused on reviving an economy that had slid to 0.2% annual economic growth. 

The first administration, led by Nelson Mandela, focused on stabilising the country’s volatile currency and reducing the government’s debt burden. 

Investors viewed this positively, with inflows into local equities picking up significantly from 1997 onwards. 

Under Thabo Mbeki, the government shifted gears to focus on economic growth through its Growth, Employment and Redistribution (GEAR) strategy. 

This strategy significantly reduced government spending and facilitated private sector-led growth. As a result, the state managed to run budget surpluses, and the economy averaged 6% economic growth. 

Foreign investors began to pour money into the country, snapping up $70 billion worth of South African equities from 1994 to 2011. The JSE during this period averaged an annual return of 14%. 

The main issue with this kind of investment is that it is ‘hot money’, meaning that it can leave just as quickly as it came. 

Unfortunately for South Africa, this is precisely what happened when Jacob Zuma was elected as President and began undoing the foundation laid by Mandela and Mbeki. 

Lings explained that foreign investors adopted a wait-and-see approach when Zuma rose to power, neither adding to or reducing their holdings of South African equities. 

From 2011 to 2015, the JSE only returned 11% a year as foreign inflows dried up and local savings were used to absorb large debt issuances by the government, whose spending skyrocketed. 

Soon, foreign investors got the measure of Zuma and the potential impact of state capture on South Africa’s institutions. 

In 2016, they began dumping South African equities, cutting their holdings from $70 billion to $10 billion in less than a decade. 

Since then, the JSE’s returns have barely outpaced inflation, leading many local investors and asset managers to look offshore for better returns. 

From 2016 to 2024, the hard work done by the first two administrations was undone, with foreign investors losing trust in the government’s promises to turn things around. 

In this context, it is difficult to sell South African equities to clients, Lings said. Even since the formation of the GNU, foreigners have continued to sell local equities every month. 

One area in which foreign investors have begun to return is government bonds, which offer attractive risk-adjusted returns. 

Lings explained that the only way out of this is for the country’s economy to grow much faster as that will give foreign investors cause to reconsider South African assets. 

Furthermore, it will provide concrete evidence of state reform plans driving positive economic results and enhancing trust in the government. 

By enhancing its economic environment, the country can create a more compelling case for investment, encouraging a return of confidence in its markets.