SAVCA: Giving South African investors comfort in the light of recent developments
An extract from Tanya van Lill’s recent conversation with economist Iraj Abedian on the topic of open and honest conversation regarding the unrest in South Africa and the impact on its economy, risk management and investment narrative.
Tanya, Chief Executive Officer, SAVCA: How do we change the perception of South Africa for international investors? What is our narrative? What is our story? How can we give investors comfort that they should still deploy capital in South Africa?
Iraj, Chairman, Pan-African Capital Holdings: I can only share with you my own. I don’t have the answer. Hopefully, what I’m going to share with you is part of the answer.
My first line in response to that, which by the way I get the question just about every week, is yes, South Africa has problems, but show me another place that you can go to that doesn’t have its problems.
Number two, if investment and bringing capital is about the risk-adjusted returns, let’s look at what South Africa has vis-à-vis Turkey, India, Mexico, etc., etc., and by the way, vis-à-vis OECD destinations. See what risk-adjusted returns in OECDs are? At the moment, if you’re lucky, about 3% to 5%.
If you go to other emerging economies; you have to ask yourself, well what type of governance do they have? There is no single emerging economy, that I know, that has a constitutional democracy. None. That is a big plus for us. As much as we are moaning and groaning – and I have been on the front end of it as well – the fact is that this (South African) society still has a legal system that works. A system that even puts the ex-presidents in prison; that put some ministers out of their offices, and that puts some of the CEOs out of their offices – the crooks get caught.
Now, there are very few emerging economies that have not just simple, but effective, operations of what it takes to have a functioning economy. Is it perfect? No. Is it better than other emerging economies? Emphatically yes.
The third issue is – there is no single emerging economy that’s has capital markets as big and as sophisticated as South Africa. None. That’s got to do with the integrity of our governors on the financial side, the Reserve Bank, the regulators. As much as they are slow and a bit dysfunctional at the moment, they are nonetheless better than their peers. It is our job again to push for improvement.
These (three points) are important underpinning of ensuring that your investment is safe, that the expected returns are credible, and then go to the country’s resource base.
We have a disproportional share of our natural resources by global standards. Only the DRC in Africa has better ratios, they don’t use it, but they have it.
Last but not least, the private sector in South Africa is the most established private sector of all emerging economies for over 100 years. Functioning private sectors, including capital markets, etc., etc.
These are advantages, the realities of mechanisms for risk mitigation of any investor that comes from outside or inside (South Africa).
In terms of returns? If you’re coming from outside, the only concern that you have is exchange rate depreciation and then expected depreciation. I don’t know what sector you’re involved in, but you have to do your calculations and say well, whatever they expected, the depreciation, can you hedge it, can you have a rolling hedge? Can you have mechanisms in place, as long as they are legal, to be able to secure the investors? In the sectors that I am involved in, I have not had any difficulty openly discussing the reality and convincing them (investors) about investing, as long as you are open about the realities which would resonate with their fears.
Tanya: I think it comes back to what you said earlier about openness and honesty, but it feels like you just gave us a little bit of a cheat sheet in terms of selling the South African narrative, so thank you for that.
Iraj Abedian is the founder and Chairman of Pan-African Capital Holdings (Pty) Ltd, and the Chief Executive of Pan-African Investment and Research Services (Pty) Ltd. He was professor of economics at the University of Cape Town, before entering the business sector in 2000. He obtained his BA (Honours) and MA in Economics from University of Cape Town (UCT). He received his PhD in Economics from Simon Fraser University in Canada in 1993. He has served as a consultant on economic policy issues to public and private sector organisations in South Africa as well as internationally. His involvement in policy development in South Africa includes: The Transformation of the Development Bank of Southern Africa (1995), the RDP White Paper (1995), Growth, Employment and Redistribution (GEAR 1996), Medium Term Expenditure Framework (MTEF 1997/98), the Presidential Review Commission (PRC 1997/98, membership of the President’s Economic Advisory Panel 2006-2009 and Economic Advisor to Minister of Mineral Resources of SA Government (Feb. 2010 to July 2012).
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