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Several factors, including a focus on macroeconomic fundamentals and work toward a Covid-19 vaccine, could attract funding to the country, says JSE CEO Leila Fourie.
Economists have warned that South Africa has now reached its ‘tax cliff’ since public sector remuneration, social assistance payments, and debt service costs have effectively absorbed government revenues.
Additionally, results from the Third Quarter Labor Force Survey (QLFS) released by Stats SA last week have placed South Africa’s unemployment rate at 30.8%, the highest recorded since 2008.
Unemployment figures stand at 43.1% in the expanded definition, which includes discouraged job seekers who have stopped looking for work.
In an interview with Bloomberg TV, Fourie said that some of the key fundamentals the government must address include the country’s ‘fiscal cliff’, low growth and high unemployment.
“The Minister of Finance recently delivered his speech on the medium-term budget in which he has made substantial commitments and unprecedented restrictions on public sector spending,” he said.
“There is also a huge focus on infrastructure investment in the country and many specific equity opportunities present very attractive return opportunities. On top of that, bond market returns relative to the underlying risk play well above their peer counterparts. “
The country is scheduled to hold its third annual investment conference this week, where it hopes to attract more investment, an important task as capital continues to flow out of the country.
Data from Bloomberg shows that South Africa is on track for its largest annual outflows of foreign money since it began tracking this information in the late 1990s.
Data from the International Monetary Fund shows that investment as a percentage of South Africa’s gross domestic product has been in decline since 2016 and the lender forecasts that the share will hit a record low of 13% this year. That compares with 25.4% in Nigeria and 21.5% in Angola.
Vaccine
In addition to a local economic recovery, the international progress made towards a coronavirus vaccine could be a boon for South Africa.
Pharmaceutical companies Pfizer and Moderna have published successful vaccine trial results, boosting markets around the world.
Emerging market stocks and currencies posted two weeks of gains in early November as news of a vaccine advance added to optimism fueled by the outcome of the US election.
However, gains were tempered as the week progressed on a spike in global coronavirus infections. Central banks said a vaccine will not end the economic problems caused by the pandemic.
Fourie said that the introduction of a vaccine will be very important for global markets and that it will have a “combined effect” in South Africa.
“South Africa has done quite well under the limitations of the pandemic. We have recently fully opened up our economy and relative to other emerging markets we are doing well.
“The news of a vaccine will flood interest and attract development market funds to emerging markets and the appetite for risk will increase, and South Africa is well positioned as an investment destination.”
Read: What to Expect from South Africa’s Interest Rate Decision This Week
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