Investing Trends In South Africa

Investing Trends In South Africa

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This piece seeks to explore the latest investing trends in South Africa with a view to providing information on some of the risks and information on how to get the best odds of success.
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Africa is turning out to be a magnet for foreign investors and the trend won’t slow down in the short to medium terms.

The investment environment in Europe and America has reached a point of maturity and investors are looking to emerging markets to catch the next wave of investment opportunities with massive ROI.

At the start of the decade, many investors flocked to the BRIC nations in the expectation that they’ll become the next economic powerhouses by 2050. However, South Africa has shown strong signs of an economic revolution that could surprise investors globally. Now, smart investors are talking about investing in BRICS, which now include Brazil, Russia, India, China, and South Africa. The emerging markets of Africa and Asia-Pacific are turning out to be the next destination for the discerning investor.

Related: Trends In Investing For Entrepreneurs In South Africa

Investing trends in South Africa

1. Commodities

It is practically impossible to talk about investing trends in South Africa without talking about its vibrant mining sector. Idan Levitov from anyoption notes that “South Africa is the perfect destination for investors who want to invest in a vibrant commodities or commodities derivatives market”. South Africa’s economic policymakers have come to a realisation that commodities could be valuable building blocks for creating a global economy and they are working hard to provide an enabling environment for trading both hard and soft commodities.

In case you are skeptical about trading commodities in South Africa, it might interest you to know that the U.S. Geological Survey estimates that South Africa holds about 50% of the world’s gold resources. Apart from gold, South Africa is also home to a number of precious metals such as diamonds, platinum, and silver among others.

2. Real estate

The real estate market in South Africa has taken off and many international real estate firms have found the South African real estate market to be lucrative. South Africa is now home to malls, skyscrapers, business districts, hotels and apartment complexes on par with what it available in Europe and the Americas. Interestingly, many global firms with strong focus on real estate developments are using South Africa as a launch pad to the rest of Africa. Johannesburg, Cape Town, Durban, and Soweto are some of the biggest real estate markets in the country.

3. Equities

The Johannesburg Stock Exchange currently tops the list for investments in the capital markets among emerging market equities. The JSE is a 127-year exchange that keeps booking gains even when the general economic outlook of the country looks bleak. Interestingly, the JSE has impressive upside potential ahead and Dominic Bunning, emerging markets FX strategist at HSBC notes that “South Africa still has a lot of challenges and there is the Fitch rating decision to come this month, but they haven’t been downgraded … cyclically there is still room for the rand to do a bit better.”

Related: Investing In Your Future

Risks to investing in South Africa

Investing in South Africa can be richly rewarding; yet, the country has some unique issues that could raise the risk exposure for investors. One of the major risks to investing in South Africa is nationalisation and expropriation activities by the South African government. For instance, there’s a pending amendment to the 2002 Mineral and Petroleum Resources Development Act. The change if passed into law would allow the South African government to obtain a 20% stake in new oil and gas businesses and the government can buy an undisclosed amount of stake at an “agreed price”.

Robert Besseling, Executive Director at EXX Africa, a consultancy, notes that “there are various… bills which are waiting for this Investment Bill to be finalised.” “It’s essentially these bills… that are increasing the risk for foreign investors.”

Another major problem making it hard to do business in South Africa is shortage of skilled labor and high level of unemployment. The official numbers from the government places unemployment at about 22.5% but the real number is closer to 40%. The lack of skilled labor makes labor expensive in South Africa in relation to other African countries. The high unemployment rate also means that there is a large number of unemployed youths who have less motivation to shun violence, mob actions, riots, and crime.

Lastly, if you want to invest in South Africa you should be prepared to deal with a systemic corruption that has led to infrastructure shortcomings. The country has a good road network and communications seems to be developing quite rapidly. However, energy is a major issue and businesses have to contend with epileptic power supply and predictably consistent blackouts.

Jun 20, 2016
Luis Aureliano, a business writer and financial analyst. With over 15 years of experience in global finance and an MBA in economics and management, Luis’s areas of expertise include business, marketing, communications, personal finance, macro economics, stocks and emerging markets.
  • http://mylyconet.com/fredjohnson Fred Johnson

    Ref Gold. Agreed resources underground and grams per ton are components to consider but surely ‘market perceptions’ and the the negative interest rate ‘experiment’ in many countries in Europe and of course, Japan, is going to drive money out of banks/bonds looking for a ‘positive return’? Soon the dollar will go up for while and then as USA exports drop, it will have to go into real negative rate. This will continue to drive up gold and silver. So getting into some not overpriced shares in these mines and even holding gold & silver would offer a better investment? The worlds financial markets are poised on a knife edge and are a disaster looking for a trigger to set it off another 2008- but more intense.Why?There’s too much debt and printing of money and this will be the downfall of ‘fiat’ currencies and, regretfully,those people who are not seeking ‘alternatives’ are going to loose wealth,, again.

  • mangethe_z

    this article mentions commodities as one of the most attractive investments. when you look at the risks involved with investing in SA that you mentioned the whole outlook on investing in SA suddenly seems very bleak. the best way to invest in SA for me would be to target the 40% unskilled and unemployed market. can you put a monetary value to this 40% or is it just a cinder-block to SA’s neck that will make sure that the country drowns in its own vomit of corrupt politicians…