eBusiness Weekly
While South Africans boil in the January heat, the global business elite is wrapped up in their warmest winter woolies to attend the 54th annual gathering of the World Economic Forum (WEF) in Davos, Switzerland.
‘‘Davos’’ has become shorthand not only for this event, but also for a specific kind of global-first view of economics, business and society.
The assembled includes not just CEOs, politicians, heads of multilateral organisations and central bankers, but also academics and other intellectual heavyweights, and occasionally film stars and rock stars.
Globalisation and its discontents
In recent years, however, the very concept of globalisation has come under siege.
The pandemic, wars, and domestic political pressures mean countries are moving away from free trade towards a greater focus on resilience and national security. This doesn’t mean globalisation is dead, as some claim, just that it is taking a different direction.
The IMF calls it “slowbalisation”. Either way, the mood in Davos these days is seemingly much more focused on the various risks facing the world economy, from conflict to climate change, than on opportunities for growth and expansion.
One silver lining on the ski slopes this year: it will be a year of falling rather than rising interest rates.
We do not know yet how far or how fast they’ll fall — hence the market gyrations over the past two weeks — but lower borrowing costs reduce financial stress pretty much everywhere.
It is into this uncertain environment that a delegation of South African business and political leaders at Davos, including Finance Minister Enoch Godongwana, has tried to sell the country as an investment destination.
It has been tough going in recent years, as low growth and massive infrastructure challenges mean foreign businesses have not exactly been falling over their feet to invest here.
Losing competitiveness
The WEF is not just an event, it is also a think-tank that publishes reports on key issues affecting the global economy.
For several years, it published a flagship Global Competitiveness Report that assessed and ranked countries across 12 key pillars, including institutions, infrastructure, education, efficient labour markets, financial sophistication, market size and innovation.
South Africa ranks highly for market size, business sophistication and financial market development, poorly for education and labour market efficiency, and in the middle of the pack for the rest.
It was ranked 60th overall out of 141 countries in 2019, the last year the report was published. It squeezed in between Greece and Turkey, ahead of the likes of Brazil, India and Argentina, but behind China, Indonesia and Mexico.
At the top of the list, as one might expect, is Singapore, the US, Hong Kong, the Netherlands and Switzerland, while the bottom five were Mozambique, Haiti, Yemen, the DRC and Chad.
Sadly, South Africa’s rank has declined over the years. In 2006 it was as high as 35. While Godongwana and company can emphasise important recent economic reforms, sceptical investors will point out that these changes have yet to arrest a long-term deterioration in competitiveness.
Taking stock
When we talk about ‘foreign investors’ it is worth differentiating between different categories. The most important distinction is between portfolio and direct investors.
The former buy South African stocks and bonds. Most of them are probably not even real people, but algorithms.
They will assess whether South African stocks or bonds offer good value based on the country’s growth prospects, inflation outlook, political stability and so on, and buy or sell accordingly.
These decisions are greatly influenced by prevailing global market conditions and risk appetite, with South African assets typically benefiting from ‘risk-on’ market regimes.
For instance, a recent and widely shared Bloomberg article highlighted that the JSE saw net selling by foreigners for the past eight straight years, totalling $53 billion.
But this needs to be seen in the context of outflows across emerging markets, a strong US dollar and the lacklustre performance of emerging market equities over this period. It is hard to know which is the chicken and which is the egg here. Outflows are probably a response to underperformance more than it is a cause.
Emerging market and SA equities, US$
Bond outflows have been less dramatic, but the foreign ownership share of government bonds has declined notably, from around 40% to 25%. As the government has issued more and more bonds, they have primarily been bought by local banks, pension funds and unit trusts (as income funds have gained in popularity). — Moneyweb
