South Africans Are Moving Cash Abroad More Than Ever Before And It Has Plenty To Do With Fear

By  |  July 23, 2019

Amidst growing concerns over the slow pace of economic growth and continued political uncertainty around the Cyril Ramaphosa-led administration, South Africans are moving their cash abroad more than ever before.

With concerns over a potential crash of the Rand growing more vocal by the day, it appears there is even more for South Africa to worry about. 

Latest findings from US research and analytics group, Real Capital Analytics (RCA), is suggesting that South African-based investors are putting more money in foreign markets than ever before – with outbound investment four times larger than money coming into the country in 2018.

The trend is believed to be fuelled by a number of shortcomings including poor economic growth on the local front, spiraling municipal rates and taxes, political and policy uncertainty, and many other issues.

The findings from the group have it that the chasm between investment activity in South Africa and overseas spending by South African investors has never been bigger, with the trend likely to remain unchanged this year.

“On the back of weaker-than-expected domestic economic growth in the first quarter of 2019, it’s likely that investors will continue to explore overseas exposure,” a part of the research read.

The international activity left domestic investment playing catch up in 2016 and since then the gap between overseas and domestic spending has widened significantly, the group’s data revealed.

Meanwhile, domestic acquisition volume dipped by more than 50 percent between 2017 and 2018 as listed entities pulled back and became net sellers.

Per the findings, South Africa-based investors sent about USD 4.9 billion overseas in 2018 (roughly ZAR 68.5 Bn). Furthermore, some 60 percent of the money was invested in retail, and close to 20 percent into each of the office and industrial sectors.

It was also determined by RCA that all the cross-border investment for the period under review took place in Europe, with 30 percent focused on Poland and 17 percent going to the UK.

These high levels of capital outflow bring to light the scale of the challenges faced by President Cyril Ramaphosa and the South African government in its drive to draw investment back into the country.

Upon assuming office as president of the country, Ramaphosa had thrown his weight behind an investment drive looking to attract USD 100 Bn (ZAR 1.4 Tn) into the country over a five-year period.

But the implementation of strategies geared towards achieving that feat continues to be derailed by domestic squabbles. On the political front, the President is dealing with a public inquest following accusations that he may have lied to parliament and violated the constitution. The situation is chipping away at his public image and spurring political uncertainty. In many ways, he’s having a hard time putting his house in order.

On the economic front, South Africa is cringing under the pressure of slow economic growth (projected at between 0.6 percent and 1.0 percent in 2019), alongside ailing state institutions which increasingly need government intervention.

These include the likes of Eskom – currently South Africa’s biggest liability – which could easily gobble up half of Ramaphosa’s investment target just to break even – while others like South African Airways, SABC, Denel, Sanral and many others continue to just about survive while waiting in line for their own intervention.

All hope is not lost, though. With the slowing transaction activity and the shrinking economy, cap rates may rise and present a buying opportunity. 

Investor confidence will be repaired if the government can finally get to grips with its objective of boosting economic growth while putting the country in a more comfortable fiscal position. As things stand, though, all the hard capital will continue to exit the country for the foreseeable future.

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