Strong sectors show significant return for foreign investors.
Despite the headlines, foreign and local investors should not lose sight of the fact that South Africa remains a highly attractive – and sound – investment option. But which sectors offer the best opportunity for international stakeholders?
A growing nation of entrepreneurs and resilient citizens, strong-performing industries and revival of the rand are grounds for optimism in South Africa. Africa is still considered the continent of the future – destined for massive growth and expansion in coming years – and South Africa – the gateway to that market – remains an attractive and viable destination for foreign and local investment.
The Global Investment Trends Monitor of the United Nations Conference on Trade and Development (UNCTAD) reports that South Africa experienced a 38% increase in foreign direct investment (FDI) inflows in 2016, translating to $2.4-billion (R31.15-billion). More than 2 000 European companies operate within South Africa and have created more than 350 000 jobs. The EU also contributes about R1.5-billion to infrastructure development for domestic and regional programmes.
Investor confidence on the up
Paul Boynton, CEO of Old Mutual Investment Group agrees that South Africa offers an ideal investment environment for foreign and domestic investors. “South Africa has generally been a good performer in the market and it remains a great investment destination. We believe that South Africa will continue to offer return that’s globally competitive.”
He says that the rollercoaster performance of the stock exchange shouldn’t frighten investors either. “South Africa has been through some rough patches in the past, but the prospect of economic growth on the continent is good.” He says Old Mutual has been buying into businesses with African growth prospects in mind. “The African market still remains robust compared the global economic growth.”
Lance Solms, managing director of iTransact Investment Platforms, says that as a foreign investment prospect, South Africa has lots of scope for growth and return. He adds that despite our challenges, South Africa remains one of the most promising emerging markets globally. “Here is a unique combination of highly developed economic infrastructure with a vibrant emerging market economy.”
He describes South Africa as an economic powerhouse, accounting for nearly 30% of the entire GDP in Africa. He adds that black economic empowerment presents a multitude of opportunities for foreign investors. “Positive changes are needed in our leadership to assist higher growth.”
When it comes to developing economies, South Africa still outranks other emerging countries like Hungary, Italy, Brazil and Thailand. International financial media agency, Bloomberg, recently listed South Africa as one of the most popular investor picks for emerging markets in 2017.
However, economists say that the continued political instability in 2016 has hurt investor confidence. According to Statistics South Africa, GDP expanded by 0.3% last year at the slowest rate since the 2009 recession.
But after falling to a three-decade low in September 2016, business confidence rose in the following three months. The Purchasing Managers’ Index (PMI) was above 50 points in January and February 2017 and according to national treasury forecasts, economic growth will probably rebound to 1.3% in 2017.
Christo Els, senior partner at Webber Wentzel, says that the 2017 investment outlook remains cautious and fluctuations in deal-making activity over the course of the year are not unexpected. “Compared to a number of its emerging market peers, South Africa is, however, still performing above expectations, which in time, should result in a stronger investment outlook.”
He added that a growing sense of international ambition and factors such as the 2019 South African government elections and the continuing threat of a possible sovereign rating downgrade may continue to drive outbound M&A activity during 2017.
This could result in South African investors seeking acquisition opportunities in Europe and other co-financing and partnership opportunities in Chinese infrastructure. Commodity opportunities in Chile and Brazil may also be an attractive option for investors.
However, Els adds that despite the likelihood of increased outbound M&A activity, local legislative developments in 2017 may go some way to affirming investor confidence in South Africa. “The strength of our judiciary and the sophistication of the financial services market when compared to peers will certainly also be positive,” says Els.
Samkele Nkabinde, communications officer of marketing and corporate affairs at the Johannesburg Stock Exchange (JSE), says the JSE’s reputation as a well-regulated exchange also contributes to the overall image of South Africa as a desirable investment destination. “South Africa’s well-developed financial sector is often cited as one of the country’s strongest selling points and the JSE plays an important role in creating the ecosystem in which this industry can flourish,” Nkabinde says.
According to World Economic Forum (WEF)’s Global Competitiveness Index 2016/2017 edition, South Africa remains the top country in the world to attain financing through the local equity market and has one of the best-regulated stock exchanges.
The report ranks South Africa out of 138 surveyed countries as number one in financing through local equity market, protection of minority shareholders’ interests and strength of auditing and reporting standards. It also ranks South Africa number three in regulation of security exchanges.
Nkabinde says that it’s not only international investors who actively trade on the JSE, but multinational companies choose to list here too. “The best examples include British American Tobacco (BAT), Glencore Xtrata and the forthcoming listing of ABInbev – all three of which have resulted in the attraction of significant investment into the economy.”
Get the latest edition of Top Performing Companies to get the low-down on the most suitable sectors for investment in South Africa.