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Cape Town - The risk side of South Africa's reputation is deteriorating notably, according to the Africa Risk-Reward Index for September 2017 released by Oxford Economics.
Experienced investors – not only in Africa, but around the world – know that risk and reward are close companions, the report states.
Political risk has become the most important element in South Africa’s economy in recent years, according to Elize Kruger, senior economist at Oxford Economics.
Investment opportunities still exist
The report finds, however, that although SA is currently trapped in a low-growth, low-confidence environment, investment opportunities still exist in defensive sectors like pharmaceuticals and telecommunications, and a highly liquid bond market that still offers attractive real yields.
The so-called risk score of South Africa (5.0) remains below Africa’s average, but this must be set against a so-called reward score that is relatively low at 4.6.
According to the report, SA enjoys a reputation as Africa’s pre-eminent constitutional democracy, with deep capital markets, an independent judiciary, and a sophisticated regulatory framework underwriting a stable investment environment.
Undermining stability in some sectors
"But several of these key institutional strengths, including the National Treasury, have gradually weakened over the past decade and we see this process accelerating in the year ahead as a consequence of divisions in the ANC, which are undermining stability in some sectors, including energy," the report states.
According to the report, South Africa, Nigeria and Egypt remain the most dominant economies in Africa for investors around the world.
But while these economies represent the continent’s most significant markets for corporate and financial investors, and remain magnets for foreign capital, all three nations are weathering periods of both economic and political turmoil on a scale that will inevitably give many investors pause and continue to deter a significant number.
Other corporates and financial investment groups will remain sufficiently drawn by these markets’ potential that they will be prepared to overlook the myriad risks involved.
Zimbabwe's potential
According to the report, many of Oxford Economics’ clients seem to be keeping an almost constant eye on Zimbabwe, although only a few are yet willing to accept the risks that would accompany any investment.
What most of Oxford Economics’ clients seem to recognise, however, is Zimbabwe's potential.
"Zimbabwe has already proved it can support manufacturing, agriculture and mining sectors significantly larger than it has at present. Once the current political leadership changes, those opportunities are likely to become a lot more accessible," according to Barnaby Fletcher, analyst at Control Risks.
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