(Bloomberg) -- South Africa is starting to see signs of a turnaround buoyed by strong investor sentiment since the formation of a coalition government but it needs to be cautious about complacency, according to chief executive officers of some of its biggest companies.
While “the sentiment has changed,” there isn’t very much that’s different for companies in their domestic operations, Sanlam Ltd. CEO Paul Hanratty said at Bloomberg’s Future of Finance event in Johannesburg on Wednesday. “There are some tiny green shoots appearing. We need to nurture those and water those. We are at the start of a turnaround, not flat out into it.”
Since the African National Congress aligned with business-friendly parties after losing its outright majority in May 29 elections, South African markets have been on a tear. The rand has gained 5% to the dollar, local-currency bonds have outpaced all peers in an emerging-market index with returns of 24% in greenback terms, and the Johannesburg Stock Exchange has hit successive record highs, delivering a 15.7% return in dollar terms.
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Beyond the positive market performance, there is evidence of foreign direct investment, said Standard Bank Group Ltd. CEO Sim Tshabalala. “Our clients are talking to us about some really big deals - lots in the pipeline,” he said without elaborating on what they are.
There is also significant interest from international investors, said Investec Bank Ltd. CEO Cumesh Moodliar.
A lunch held at Investec offices in London on Monday attended by Deputy President Paul Mashatile and a delegation of ministers, who were on a roadshow to attract foreign capital into South Africa, drew emerging-market fund managers that collectively manage $19 trillion, he said.
Several foreign investors who are still holding out from deploying their cash may do so once they see tangible signs of an economic turnaround and the multi-party government lasting, said Tshabalala.
Gross domestic product has expanded by an average of less than 1% over the past 10 years, and South Africa is the continent’s slowest growing economy after Sudan and Equatorial Guinea.
If the country expedites reforms such as operational improvements at state-owned ports and freight-rail company Transnet SOC Ltd. and power utility Eskom Holdings SOC Ltd., GDP growth exceeding 3% by next year is doable, Discovery Ltd. CEO Adrian Gore said.
Still, the country needs to be cautious about becoming complacent in thinking that the “energy problem is solved, the logistics problem is solved - it is not solved and they are going to continue to need hard effort from all sides,” said Hanratty.
While the nation has had no power cuts for more than six months following its worst year of outages on record in 2023, Eskom still needs to build additional generation capacity.
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(Updates with comments from Investec and Standard Bank CEOs in paragraphs six to seven)
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