Highlights
– Zuma met with US government officials over economic outlook for South Africa, pushes for more US investments
– Global economic crisis may have detrimental impact on tourism
– Foreign investor interests in South Africa remain strong despite world market turmoil; investments likely to increase in 2009
On October 21, 2008 Jacob Zuma, the president of the African National Congress (ANC) and widely expected to be South Africa’s next president, met with United States (US) officials and business leaders in Washington to deliver a strong message to existing and potential investors stating, “No panic, everything is fine in South Africa.” Zuma assured officials that there “should be no worry” when it comes to investing in Africa’s biggest economy. However, a number of potential investors and business leaders are uneasy about the presidential-hopeful’s ties with communist and trade union allies, who may steer the country away from former-president Thabo Mbeki’s pro-business policies (Previous Report). Despite general fears of a move to socialism, however, Zuma stressed that he would not be swayed by pressure from the ruling parties’ socialist allies.
Moreover, potential investors have looked to South Africa’s tourism sector as a measuring source for the nation’s economic prosperity. Interestingly, the global financial crisis has not yet severely impacted the country’s tourism sector, as tourists have enjoyed stronger purchasing power against the South African rand. However, should the global economy continue to spiral downward, some officials have projected that the number of future tourists may decline. Nonetheless, Zuma’s visit to Washington was to assure foreign investors that investment in South Africa should remain strong, and if he is president in 2009, the prospects for future investments will likely increase.
Push for US Investments
One of Zuma’s aims for his visit to the US was to improve commercial ties between the two countries. Upon meeting with US cabinet level personnel, he relayed strong sentiments that not enough had been done in the past to encourage investment from the US, one of South Africa’s key trading partners. Mostly concerned with the potential for the global economic turmoil to slow South Africa’s economic growth, Zuma said he was in the US to push for greater US investment. He explained, “We believe America, up to now, has not taken… advantage of the open economy that we have.”
However, according to the US Census Bureau, the United States has exported US$4.2 billion worth of goods to South Africa between January and August 2008 and has imported close to $7.2 billion within the same period. Furthermore, US government leaders remain hopeful that the nearly seven-year-old round of Doha world trade talks could still be concluded before the current US administration in January 2009, yielding favorable results for South Africa in the near to mid-term.
Foreign Investment “Still Strong,” Prospects for Future Growth
A number of other foreign investors in South Africa have echoed Zuma’s description of future investment interests in the country. In a recent interview with Winston Monale, head of equity sales at Merrill Lynch SA (MLSA), Monale stated, “There is clearly a level of concern with investors looking for where the risks are, but they are looking for opportunities.” MLSA joint CEO Clifford Sacks echoed this sentiment saying the rand’s decline to above R11 to the dollar, combined with falling share prices, has “made South African shares more attractive to potential investors.”
Likewise, the decline of the rand has given more purchasing power to visiting tourists, who are likely to spend more during their vacation in South Africa. The downside is that the global economic crisis will likely hit middle-income travelers in developed countries the most, making the one-time potential visitors less willing to travel to the country.
A number of tourism monitoring agencies, however, have not reported a decline in tourism arrivals to South Africa.
• According to the South African Tourism agency, the total number of foreign arrivals had grown by 7.8 percent between January and July of 2008, and arrivals from US and European countries continued to grow steadily.
As investors remain interested in the growing opportunities for investment in South Africa, and as tourists continue to take advantage of rising purchasing power, foreign investment opportunities will likely increase in the near to mid-term.
