Rand hit new all-time low COVID-19

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Foreign investment slumps: How South Africa has lost R70 billion in 2019

Despite foreign investment being one of President Ramaphosa’s key focus areas, his efforts have been dealt a blow by several factors this year.

Rand hit new all-time low COVID-19

Photo: Adobe Stock

Alongside job creation, the drive to raise overseas capital coming into South Africa was one of Cyril Ramaphosa’s flagship policies after he entered office in 2018. On Tuesday, we learned that unemployment reached an 11-year high. Now, just 24 hours later, it looks like his foreign investment plans have taken a massive hit.

Last year, we saw images of Cyril grinning – almost menacingly – as he scooped billions of rand from some of the world’s financial superpowers. China, the UAE and Saudi Arabia pledged hefty totals, and the president attempted to secure $100 billion for Mzansi. However, a sizeable amount of that figure has already been chipped away.

How it all works

To understand a little more about the way money moves in and out of the country, we spoke to immigration experts Sable International. They revealed the complex channels required for both foreign nationals and South Africans when it comes to shifting money abroad:

“Exchange control is the way a government controls the movement of money into and out of a country. In South Africa, exchange control regulations are governed by the South African Reserve Bank (SARB), which dictates how much and under what circumstances you may transfer money.”

“Although the rules are different for foreign investors, moving money into and out of the country requires expert knowledge and understanding. If someone wants to withdraw more than R11 million, they need the approval of SARB and the SA Revenue Service (SARS) beforehand.”

Sable International

Why investors are pulling their cash out of South Africa

It is estimated that around R70 billion has left the country over the past six months – a devastating blow to the economy, which is already feeling the impact of a 3.2% retraction in the GDP in the last quarter. But what is causing this panic? Well, you’ll probably be able to guess the name of one of the main culprits:

  • Eskom: According to Inkunzi Wealth Group director Owen Nkomo, investors are spooked by the ailing SOE.
  • Bond values: Money tied up in the country is depreciating, causing investors to think twice about their SA commitments.
  • Attractive alternatives: In an incredibly competitive industry, emerging and reliable markets are taking business from Mzansi.
  • Economic uncertainty: Unemployment is up, GDP is down and the Rand is wobbling. Therefore, foreign investment takes a hit.

How much foreign investment money has been lost in 2019

Financial researchers at Bloomberg have estimated the R70 billion outflow – which is just under $5 billion – to be the most costly loss of foreign investment since 1998. If it wasn’t for a strong performance by local investors, this picture would be even bleaker.

“Ramaphoria” has been and gone. South Africa must wait until November to see if it can keep its head above the choppy waters of junk status. But with the momentum firmly working against his administration, 2019 could be an ominous year for South Africa. As well as overseas cash, skilled workers may also ditch Mzansi in the months to come.