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South Africa is still considered to be a favourable destination for investment, despite the economic and sociopolitical challenges it faces. It is, however, being outperformed by smaller economies on the continent.
The latest Africa Risk-Reward Index, released this week by Control Risks and Oxford Economics, plots countries’ performances relative to their peers’. The index, which captures the evolution of the investment landscape in African markets, singles out three aspects to take note of.
Firstly, it cautions against assuming reform-minded leaders are able to push through political constraints, highlighting South Africa and President Cyril Ramaphosa’s efforts to institute reform while struggling against populist elements within the governing ANC.
Secondly, it offers a closer look at the growth potential offered by intra-African trade and, while it lauds the signing of a continental free-trade agreement, cautions against its slow implementation.
Finally, the index takes account of the changes in the geopolitical arena, highlighting the US-China rivalry and also China’s expansion into Africa and its role in the development of infrastructure which will allow the continent to be a progressive player in the world economy.
In Africa, diversification increasingly equals success and economies can no longer rely merely on mineral resources.
“Especially at a time of trade war, which threatens to further depress Chinese demand, dependence on raw commodities is a serious weakness for an economy.
“It is for this reason that governments are competing to attract investment capital firms to grow their manufacturing and services sectors to supply goods and services to the millions of Africans moving to the continent’s cities,” says Francois Conradie, head of research at Oxford Economics.
Although the outlook is bleak in South Africa – the country has slipped in rankings – it still retains a positive reward and risk profile.
However, recent economic data, poor growth and soaring debt levels are red flags.
While the Reserve Bank works hard to maintain price stability and inflation, a weak exchange rate is expected to put more pressure on already cash-strapped households.
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