Major red flags for investment in South Africa
South Africa needs urgent action or risk losing major domestic and foreign investments.
As reported by TimesLive, Anglo American group CEO Duncan Wanblad said that investors and business leaders were irritated by South Africa’s failing infrastructure – specifically load shedding and Transnet’s issues.
Speaking to Business Day at South Africa’s fifth Investment Conference, Wanblad said that the lack of initiative in fixing these issues could force investors to look elsewhere.
“I’m talking about the people who invest in companies like Anglo American, they have choices… and they demand a certain return for their investment. To the extent that the way we operate is uncompetitive with the other sets of options they have, that makes investment difficult,” Wanblad said.
Although South Africa is not a basket case, international investment was “becoming more and more challenging because the country is becoming less and less competitive”.
For Anglo American, billions of rands were lost due to logistical issues, such as Kumba, whose iron ore did not go to ports on time.
In addition, the recent greylisting of South Africa by the Financial Action Task Force means that the international community has lost faith in South Africa’s ability to combat financial crime.
Despite the greylisting not affecting Anglo American directly, Wanblad said that the group could suffer if South Africa’s investment ratings dropped.
“There’s a real concern … in everybody’s mind, and I think now is a good time to say: I think we’re on a precipice. Where do we go to from here? Because, you know, there are two ways really — it’s down, or we can turn it around and move it up,” he said.
Ramaphosa confidence
President Cyril Ramaphosa was far more positive at the investment conference.
He acknowledged that South Africa’s major problems over the last year had worried investors; however, he said that the country is still on the path to recovery.
“We are now confronted with the consequences of years of under-investment, mismanagement and corruption in our electricity, rail and logistics sectors,” the president said.
“We are on a long journey to rebuild our country and recover the ground we have lost. Our recovery is a mission that will take time to accomplish. We are on the recovery path, we refuse to be daunted by the challenges we face, we are confident that we will recover.”
The president was seeking to add further billions of rands worth of investment into his five-year plan to draw R1.2 trillion in investment to the country.
South Africa has now drawn R1.5 trillion in investment pledges since 2018, overshooting the initial target.
For the next five-year cycle, the president said that the new investment target is an additional R2 trillion, despite the dire global economic environment.
Government’s own goals
Busi Mavuso, the CEO of Business Leadership South Africa (BLSA), previously said that the government has done little to make South Africa look attractive to investors.
“There were several blunders in how government communicates to the market,” said Mavuso.
For instance, she said that National Treasury’s exemption given to Eskom, allowing it to skip reporting irregular, fruitless and wasteful expenditure, was a major blunder.
Fiance Minister Eoch withdrew the exemption shortly after, citing that the move was done to protect the embattled power utility’s credit rating and audition opinion, however, the move was met with public outcry over fears that it would enable further corruption at the entity.
“The way it (the exemption) was communicated to the market (created the impression) that the exemption was to enable withholding of information from rating agencies (and this) was a serious blunder. It damages the government’s reputation as an honest counterpart to investors,” Mavuso said.
She said that another blunder was made by electricity minister Kgosientso Ramokgopa regarding his comments about making South Africa’s ageing coal power fleet a priority again – potentially diverting attention from the country’s shift to renewables.
“While it is completely right that the stations should be managed to improve performance, the minister was widely quoted saying that their lives should be extended through greater government investment while more should be invested in coal mines to produce more coal,” Mavuso said.
“This would not be about running the stations better, but about breaking with the plan set out by the National Electricity Crisis Committee (NECOM) based on the existing decommissioning schedule for Eskom plants.”
She said that the minister’s comments could be interpreted poorly by investors who are looking to put billions into the nation’s transition from coal.
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