South Africa is becoming less and less attractive as an investment destination with foreigners who have already sold more than R220 billion in South African shares and bonds since the beginning of this year.
South Africa’s relevance in some market indices continues to weaken and the country’s weight on the MSCI’s index of emerging markets has recently fallen further after already falling from 12% to below 4% over the past 25 years. Three large South African companies were removed from the South African index and consequently from the index of emerging markets at the end of August.
“The index is composed of more than 1 400 constituents from 24 emerging countries and it is essential for South Africa to assert itself on these types of indices, to give an indication of how strong your economy is, or whether your economy is growing and to determine whether there is foreign interest in your economy and listed companies,” says Thys van Zyl, CEO of Everest Wealth.
“It is therefore very worrying that three companies have been removed and South Africa’s weight has fallen further. This resulted in the outflow of billions of rands. Data from the JSE shows that foreign investors have already sold a net amount of R89.9 billion in South African shares this year, R30 billion more than at the same point last year. In addition, they have so far sold a net amount of R137 billion worth of South African bonds.”
Negative investor sentiment only seems to be further soured with various challenges that call into question South Africa’s attractiveness as an investment destination.
“Corruption makes investors reluctant to invest in South Africa. Diplomatic missteps by the government and political instability are spooking investors amid sluggish economic growth, largely due to load shedding and the country’s deteriorating transport network. South Africa and its economy therefore discourage foreign investors and their actions highlight this.”
The government must put reforms in place to eliminate the country’s logistical constraints and power crisis so that the economy can grow. Meanwhile, the 2024 election also poses a risk due to the various scenarios that may result from its outcome.
“South Africa’s relations with Russia and the possible consequences this has for the Agoa trade agreement as well as the country’s greylisting results in international investors avoiding the country. The government created its own problems and it is time for it to recognize this and actually put plans in place to get the economy moving again.”