If you read any good South African business or financial news publication, I would wager that you will stumble upon an article which reads something like – "local and foreign investors hoarding cash in their banks accounts…South Africa rife with political and economic risk…depressed resource prices…Rand volatility…cabinet reshuffle…Jacob Zuma!".

Some South African journalists even argue that the top 50 listed companies have increased their cash reserves to a staggering R1.4 trillion over the last 10 years. But is the situation really that bad?

AFRICA FORUM

I recently had the privilege of attending the Hogan Lovells Africa Forum (the Africa Forum Report Johannesburg 2017 can be downloaded here), which was hosted in Johannesburg on 20 September 2017.  For those of you who are unfamiliar with the event, the Africa Forum attracts C-suite businessmen and women, captains of industry and thought-leaders who are keen to share and expand upon their perspective of doing business in Africa. It comprises a number of panel discussions and breakaway sessions, which aim to ventilate and interrogate topical issues related to building a sustainable business on the African continent, and  is seen as a sublime networking opportunity, with the opportunity to forge meaningful connections with influential leaders.  If you have never attended the Africa Forum, I highly recommend that you do so.

At this year's Africa Forum, Warren Drue, head of corporate at Hogan Lovells South Africa, hosted a panel discussion regarding the revival of M&A in Africa.  The panel was made up of corporate heavyweights, including Konrad Reuss, of Standard and Poor's, South Africa and Avrom Krengel, from Investec Bank.

The panel was asked why it appeared that investors were loathed to invest in South Africa.  The consensus was that investors simply did not have the appetite to take on the political risk.  The panel noted that the legislative, regulatory and policy uncertainty, which permeates the South African economic landscape, all created a framework which dis-incentivises investment.

Krengel stated that during the first quarter of 2017, South Africa had begun to forget its investment rating downgrade and there was a recovery in commodity prices which indicated a positive economic outlook.  But this did not last long.  According to Krengel, any form of upswing in investor sentiment was destroyed by yet another cabinet reshuffle by the President.  This had existing and potential investors retreating to greener pastures in other emerging markets.

It was interesting to see Reuss, being the head of one of the major rating agencies which had recently downgraded South Africa's investment grade to "junk status", echo Krengel's sentiment. Ruess noted that investment is advanced into economies that are stable, show growth and have certainty in respect of their polices.  As a South African, it certainly feels as if my country does not tick many of those boxes.

The key narrative advanced by Krengel and Reuss was that certainty and stability are the cornerstones of investor confidence.  In a country which has had four ministers of finance in half as many years, it is easy to understand why investors may be nervous to commit funds to South Africa when economic policy could change as quickly as the (UK) weather.

SOUTH AFRICA RISING OR FALLING?

Much has been made of the slogan "Africa Rising", which seeks to highlight the upward trend in Africa's socio-economic and political climate.  Africa Rising is a forward–looking concept and highlights the myriad of investment opportunities which currently exist, and will exist, for those investors who are able to see through the current political and economic fog-of-war.

If Africa is rising, where does this leave South Africa?

According to the South African Minister of Trade and Industry, Dr. Rob Davies, "South Africa remains a reliable investment destination which is open for business".  Minister Davies qualifies this statement.  He notes the challenges that have been created by the downgrade of South Africa’s investment status and both domestic and international issues that have an adverse impact of the stability of South Africa’s economy.

The idea of an investment strike has also come under fire.  Market commentators argue that, taking into account inflation and the long term weakening of the Rand, the cash which sits on investors' balance sheets relative to South Africa's gross domestic product, has remained stable over the last 8 years.

There are a number of other metrics, which indicate that investors have seemingly maintained the status quo and that there has not been a reduction in the relative value of investment made in South Africa.  It is clear that there are two sides to this coin.

RISKY BUSINESS

More often than not, investing in a single jurisdiction contains an element of risk.  For most investors, the risk in investing in the South African economy is amplified by the rating downgrades and the political noises which have occurred over the last few years.  But as with most risk, there exists the opportunity for equal, if not greater, reward for those who are bold enough to rise to the challenge.

Take the example of Sir Edmund Hillary, who was (arguably) the first person to summit Mount Everest.  Navigating the uncharted slopes of the world's tallest mountain is undoubtedly a massive risk, rife with danger and countless unknowns.  But Hillary overcame this risk.  He was driven by the reward of being the first to conquer the mountain and in doing so wrote his name into the history books.  Similar to climbing Everest, investing in the South African economy is not absent risk.  But as was illustrated by Hillary's achievements, even the biggest challenges can be overcome and rich reward can be derived. 

South Africa may be a challenge, but it most certainly is open for business.