Investment in South Africa might provoke additional risk

By Staff Writer

Apr 05, 2016 07:52 AM EDT

South Africa's economy, which was once considered a darling among foreign investors, have slumped over the previous 18-month period. Market experts view the current economic situation as a major risk factor for further investment in the country. According to experts, making additional investments in South Africa may hinder the prosperity of individual investors.

In December 2015, the three key rating firms lowered their forecast for the country's economy, leaving investors in a desperate position. The nation's overseas direct inflows dropped 74% in the previous year. However, things seem little better during 2016, with a number of investing laws forming the grounds for investors. In early 2016, a failed investment agenda sparkled the risk for investments in the country. Investors are also worried about the greater possibility of nationalisation, as reported by GLOBAL RISK INSIGHTS.

With an aim to safeguard the country from nationalization, the government of South Africa revealed a new investment agenda, called The Protection of Investment Act, in 2015 as an alternative to the existing Bilateral Investment Treaties (BITs) that was introduced in the middle of 1990. Currently, South Africa is working to reform its BITs, following the footsteps of Venezuela and Indonesia.

The pending bills are the risk drivers for investors, according to Robert Besseling, EXX Africa's executive director. He said, "There are various... bills which are waiting for this Investment Bill to be finalized. It's essentially these bills that are increasing the risk for foreign investors." The economic fortunes of the second largest economy of Africa are fading. The World Bank lowered its forecast in February for the nation's economic activity to 0.8% in 2016 from 1.3% in 2015, the bottommost since 2009.

In the currency market, rand weakened against the US dollar during the early trading session on Monday due to the growing anxiety regarding South Africa's economic and political forecast. The country's rand fell 0.5% at 14.7670 against the dollar at 0705 GMT, Reuters said.

On Friday, rand jumped to 14.6050 on an optimistic thought that President Jacob Zuma might leave the government following a domino effect from a court ruling. However, the currency shed its gains soon after the African National Congress reiterated its backup for the president. Pravin Gordhan, the present finance minister, warned that weak economic growth would result in poor revenues to fund government projects in 2016.

According to allAfrica, the government of South Africa is aiming to industrialise the nation's economy via Black Industrialist Programme, Rob Davis, trade and industry minister, said at a roundtable conference. He said that the country needs to shift from being just a producer and turn to industrialisation.

The country has been facing many difficulties over the recent period both economically and politically. Experts believe that a political reform will boost investments into South Africa.

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