RETURNING South Africa to its pre-Marikana investment status will need much more than resolutions taken by delegates at the African National Congress’s (ANC’s) Mangaung conference, and will depend on the government’s ability to implement investor-friendly policies.
This is according to business representatives and analysts who spoke to Business Day last week.
South Africa’s image has taken a serious knock this year, with violent and disruptive strikes across sectors, the continuing effect of a slowdown in global demand, and ratings downgrades, among other factors.
"It is only when we have things like a stable economy, investor-friendly policies and strong commitment to free and open trade, that the government can position South Africa as an attractive destination for global investors," says BDO South Africa business development director Russell Fox.
The ANC conference took several decisions, including the rejection of wholesale nationalisation in favour of "strategic state involvement". Delegates also decided to regulate, rather than ban labour brokers, and the government would also consider tax breaks for employers who hire young job-seekers, in order to tackle unemployment.
However, ratings agency Moody’s said that while the ANC’s policy platform was more investor and business friendly, there was still uncertainty over the details.
Recent strikes in the mining and transport sectors cost the economy billions of rand and also affected investor and business confidence.
Companies consider several factors before investing in a country, including politics, economic performance, sovereign ratings, and the management of fiscal and monetary policy.
Investec Group economist Annabel Bishop said another important element for companies was their ability to price in risk. "To improve this ability, government needs to improve policy uncertainty and engender firm leadership in an environment of improved property rights, regulatory efficiency, reduced state intervention and open markets," Ms Bishop said.
"Indeed, South Africa’s image as an attractive foreign direct investment destination needs to improve to raise long-term investments to above 1% of GDP (gross domestic product) and consequently benefit the rand."
A United Nations Conference on Trade and Development study shows that foreign direct investment (FDI) to South Africa fell 43.6% in the first half of the year compared with the same period last year, but that most of it was attributable to the depressed global economic environment.
Special policy adviser to Business Unity South Africa (Busa) Professor Raymond Parsons noted that the country attracted less investment due to global, and domestic events such as the strikes.
However, despite this, "foreign interest in our bonds and shares on a short-term basis has been positive".
"But it should be clear that to the extent that South Africa continues to attract short-term capital flows, their influence on the rand so far has outweighed any weakness in FDI," Prof Parsons said.
South African government bonds became more attractive to investors after their inclusion in US investment bank Citigroup’s influential World Government Bond index in October. This could not have come at a better time for South Africa. The inclusion boosted investment flows which the country desperately needs given the large shortfall on its current account.
Reserve Bank data shows that nonresidents increased their holdings of domestic bonds by R22.8bn in the third quarter of this year and by a further R3.1bn in October.
"These are mainly long-run investors, especially those benchmarked to the World Government Bond index. But also given such strong inflows into long-term investment bond funds and in particular emerging markets ones globally, money is flowing into South Africa … even if people are moving from being overweight to more neutral weight, given the domestic situation," says Nomura International emerging markets economist Peter Attard Montalto.
Total net purchases of local bonds by nonresidents soared to a record R81.1bn in the 10 months to October, compared with net purchases of R42bn last year.
Despite these inflows, Mr Attard Montalto suggested South Africa had probably underperformed its peers slightly. Stronger growth in countries such as Poland and Turkey, which did not have "the same structural and policy issues", had them doing better in terms of bond flows.
The government can also improve South Africa’s image by addressing "highly publicised incidences of fraud and corruption", according to Mr Fox. South Africa dropped from 64th place to 69th out of 176 countries in Transparency International’s worldwide corruption perceptions index, suggesting that corruption slightly worsened this year compared with last year.
© BDlive 2012