JOHANNESBURG – South Africa recorded less foreign direct investment in the third quarter compared with the second quarter, but portfolio investment jumped after the government issued international bonds, central bank data showed on Friday.
Investor confidence in South Africa is fragile, with the economic growth outlook clouded by a lack of progress on reforms and an energy crisis.
South Africa had inflows of 17 billion rand ($1.16 billion) in the third quarter compared with 26.3 billion rand in the second, the South African Reserve Bank (SARB) said in its Quarterly Bulletin.
The portfolio investment inflows were 40.2 billion rand from July to the end of September, compared with inflows of 10 billion rand in the previous quarter, mainly reflecting the government’s issuance of international bonds of $5 billion, the SARB said.
“This more than offset both net sales of domestic debt securities by non-residents and the switch from non-residents’ net purchases of domestic equities in the second quarter to net sales of 32.3 billion rand in the third quarter,” the central bank said.
South Africa relies on foreign money to cover its large budget and current account deficits. Treasury data showed that foreign investors held 36.9% of South African government bonds as of October, down from nearly 43% in March 2018.
Nationwide power cuts have deterred investment and caused a major headache for President Cyril Ramaphosa, as state-owned utility Eskom struggles to keep up with demand, mainly because of breakdowns at its coal-fired plants.
Ramaphosa has vowed to reverse years of mismanagement and economic stagnation under former President Jacob Zuma. But he is facing fiscal pressure and mounting national debt as the government bails out ailing state firms like Eskom and South Africa Airways.
The high debt, coupled with the weak growth outlook, have endangered South Africa’s only surviving investment-grade credit rating, from Moody’s.