After studying emerging markets now for almost 20 years it has become quite apparent that investors don’t really buy the current status of a country’s development, but its pathway towards something better. This is as true of foreign direct investment as it is of portfolio investment into bond and equity markets.
Does SA realise this? Through the last 15 years the answer was probably no, but two recent international roadshows (capped by a successful dollar bond issuance) seems to suggest that in some places this kind of thinking is starting to resonate.
Yet the stakes are now all the higher after the US elections, and I am still not convinced that (enough) people in Pretoria really understand this. Emerging markets will survive the Trump presidency where they have a sense of strategy and a clear long term geostrategic and economic/growth pathway.
What is SA’s long term geostrategic pathway? That is never clearly laid out by the department of international relations and co-operation. It is not the same as saying you have an agenda on human rights and similar. It is about why people should take you seriously in various spheres.
The global foreign policy dynamic is shifting to one that is more transactional, more about deterrence from the US administration than a slightly “softer” style of the outgoing US administration.
SA often forgets the competitive aspects of these things. There is serious competition from other areas in Africa — Lobito between the two oceans, on logistics and on critical minerals; East Africa in terms of more raw productivity and the competitiveness of the economic block. The classic problem of running but standing still certainly wasn’t understood in much of the last decade, but now with some people like Parks Tau and Ronald Lamola in government perhaps becomes clearer.
Within this broader context SA cannot handwave about the African Continental Free Trade Area (AfCFTA) but needs to be an exporter of productivity, of low carbon goods and of services (you rarely really hear about SA being a financial hub for leveraging and scaling capital for all of Africa).
In the shorter term, SA really needs to stop shooting itself in the foot on foreign policy — though this is more applicable to the ANC. The Mozambique post-election communications and congratulations to the prior incumbents was simply nonsensical given the evidence. The same should be said for avoiding photos of our leaders hugging Iranian leaders — this is probably the most obvious easy win after the January inauguration.
Overall, I am quite confident that a pathway can be found with the Trump administration in the bilateral relationship. The dependencies though are if the president has control of his more extreme voices on foreign policy in the ANC, that there is a clear sense of steering clear of red lines, including on Iran, and trying to sidestep any deterrence the US tries to use elsewhere, including on Russia.
Some hard-headed foreign policy deals will need to be made in real diplomatic give and take — requiring some nose holding (and a bit of ego buttering, for which the G20 is ideal).
The importance of a clear pathway can be stated too on reforms and the need for narratives for investors. The Operation Vulindlela agenda is now widely understood by investors, but remains complex and hard to communicate. Both foreign direct investors and portfolio investors have to be hand-held regarding the reforms that are happening and how they affect growth and the ease of doing business environment. Specific reforms like the forthcoming network statement for rail need to be specifically highlighted to specific investors, with more careful stakeholder management by the department of transport, for instance.
This is not easy at all, especially as global trade war headwinds hit, and we wobble on, likely falling out of the US African Growth and Opportunity Act (though people often overestimate the impact of this). In a more uncertain world — full of noise like tweets about farm murders by Donald Trump — the performative will need to be separated from the “real” (just as in the case of the government of national unity (GNU), where almost all of the drama so far is performative).
Something new is needed; indeed, three things. The first is for existing reforms towards a faster growth pathway, and fiscal conservatism to translate into a ratings pathway back towards investment grade (somewhere on the horizon). S&P has kicked this off with an outlook upgrade, but there is clearly a long way to go, with other agencies rather more grumpy and likely to be waiting for more evidence to emerge. This rating cycle has been a key missing piece of the puzzle since the start of the GNU, particularly for long only and indexed investors globally.
Add to this the greylisting exit now looking more likely at the end of 2025. The impact here hasn’t been a big negative bang, but it has been serious grit in the wheel. An exit will be a lubrication of the system that is important.
The third issue is the need for macro reform. This was almost unspoken in the medium-term budget policy statement (MTBPS), but there has been a huge amount of work done on a fiscal anchor and a lower inflation target, some of which is still to fully surface. Investors and the whole economy more generally need a clear pathway to lower interest rates through a flatter and lower yield curve.
This must be a central macro policy aim, but the MTBPS was more lost in the details. There are huge upsides for growth and jobs to be able to shift to a lower interest rate paradigm in the economy, even though there are many steps to get there. Investors don’t need the end point straight away, but need to have a clear sense of a pathway. That was lacking from the last few weeks.
The government has only a little time through to January and the new US administration getting its house to sketch out all these pathways. If it can navigate this, SA has the ability to outperform other emerging markets, which are ultimately competitors.
• Peter Attard Montalto leads on political economy, markets and the just energy transition at Krutham, a SA research-led consulting company.
This article first appeared in Business Day.