South Africa’s Flag Flies, But Foreign Investors Remain in Fear
Despite the resurgence of South African assets in recent months, the head of the country’s biggest bank, Standard Bank, is warning that foreign investors are still wary of diving back into the market.
The formation of a government of national unity, led by President Cyril Ramaphosa, sparked renewed confidence in local markets, with the rand rallying against the dollar and local and hard-currency bonds outperforming peers from developing economies.
But don’t get too comfortable, folks. Sim Tshabalala, CEO of Standard Bank Group, says that international investors are still waiting to see real economic activity before committing to the market. And with good reason – the country’s history of corruption scandals, energy crises, and economic meltdowns has left a scar.
"The level of confidence this time is greater than any other time other than in 1994," Tshabalala says, but warns that it will only last if the government can deliver on its promises of structural reforms and investor-friendly policies.
But will they? The question on everyone’s mind is whether the government of national unity will be durable and able to deliver on its promises. The answer to that question will determine the fate of South Africa’s economy and the confidence of foreign investors.
Investors Still Wary After Last Time
Remember when Ramaphosa rose to power in 2018 and markets rallied on expectations of economic reforms? Yeah, that didn’t quite work out as planned. Progress has been slow, and investors are still hesitant to get back in the game.
"Foreign investors have been wary of South Africa following a slew of corruption scandals, an energy crisis linked to the debt-ridden Eskom Holdings utility and a meltdown at Transnet SOC, the state-run rail and ports operator," says money managers at Loomis.
And it’s not just the past that’s worrying investors. Unemployment and high public debt remain major economic challenges, and last year was the eighth in a row that foreign investors dumped South African equities – a record-long streak.
Will the Positivity Last?
The positive mood in the market is real, but Tshabalala warns that it will only last if the government can deliver on its promises. And even then, there’s a risk of another market correction if the reform momentum falters or the coalition collapses.
So, will South Africa’s economy finally start to take off, or will investors remain wary? Only time will tell, but one thing is certain – the country’s fate is in the hands of its government.
