The potential for doing business in South Africa remains high despite its greylisting, but there needs to be continually better facilitation for the private sector to play an even greater role in the economy.
Since the beginning of 2023, foreign investors have sold around R100 billion in South African shares and bonds. There has also been an increase in the sales of the country’s fixed assets. Loadshedding, which costs the country millions of rands daily, also played a big role.
“This is a clear indication of a decline in investor confidence which is now being exacerbated by South Africa’s greylisting,” says Rudolph Janse van Rensburg, Portfolio Analyst at Everest Wealth.
“Political uncertainty drives a very large misperception regarding confidence in the South African economy. The rand is a very undervalued exchange rate and is not currently a direct reflection of the economy.
“However, everything is not all moonlight and roses, especially considering the political situation and poorly managed state enterprises, but we have a rapidly growing private sector that is taking more and more responsibility as it is allowed.”
Janse van Rensburg believes that one of the few things the government has done right is to offer tax rebates for green energy initiatives. “This will hopefully lead to more and more private companies getting involved in environmental, social and governance (ESG) issues and therefore driving our country towards a better, more balanced future.”
At the end of February, South Africa was placed on the so-called greylist by the International Financial Action Task Force (FATF). The FATF believes that South Africa is doing too little to combat corruption and money laundering, among other things, and the country will now be under increased monitoring.
According to Janse van Rensburg, there were immediate negative consequences after the country was placed on the greylist. This includes the weakening of the rand and shares that have fallen.
“The greylisting will result in all transactions concerning South Africa being seen as high risk and therefore in effect will make it more difficult and expensive for foreign investors to be able to productively invest money in South Africa. This will also make the process even more time consuming. This decrease in foreign investment will become more and more of a reality over time and will of course have a direct effect on our gross domestic product (GDP).”
South African fund managers who have invested money abroad are also expected to be affected as they will now have to go through a more intense process to move the money in the fund as well as between countries.