Have SA investors ‘missed the offshore boat’?

First quarter unit trust flows in South Africa illustrate a dramatic slowdown in offshore investment.

This is probably driven by the fact that investors feel they have ‘missed the boat’ in terms of offshore diversification given the rand’s recent decline. This slowdown in offshore flows is in marked contrast to previous bouts of rand weakness – the most extreme of which was around 2000 – where a sharp fall in the value of the rand saw a ‘rush to the door’ as investors, fearing that the rand would collapse to R20:$, were insatiably driven to buy US Dollars for as much as R13. Such was the fear and lack of faith in our currency. These days, interestingly, after an extended period of rand strength investors have more faith in the currency. When they feel the currency is oversold, they wait for the inevitable recovery.

So with the rand currently hovering at around R9 to the US$, what are South Africans to do?

First, let’s return to why the currency weakened in the first place. The last six months of 2012 saw SA all over the world’s headlines for all the wrong reasons. First it was the mining strikes, then the tragedy of Marikana, then Western Cape farmworkers joined the strikers, then came The Economist’s cover page showing striking miners carrying pangas and spears as though off to war, accompanied by an article, which – whilst not entirely accurate – painted a picture of a South Africa descending into chaos. And then came Oscar Pistorius, reinforcing foreign fears that SA is a lawless society driven by violence. All the tourism goodwill generated by the 2010 Soccer World Cup, which showed foreigners that they could come to SA for a two-week holiday without being shot, evaporated as images of one of SA’s most famous sons (and beautiful daughters) were splashed across the world’s screens, fascinating a horrified global audience. Of course, all of this did not go unnoticed by foreign investors and rating agencies alike.

The rating agencies downgraded us, foreign investors avoided us and, together with a decline in exports as a result of the mining strikes halting production, the current account deficit widened significantly and the rand fell.

Of course, we are not the only country with problems. America is recovering, albeit slowly. The UK is celebrating first quarter growth of 0.3%, as it means they narrowly avoided a triple dip recession. (Celebrating 0.3% growth is like calling a maximum daily temperature of 14 degrees ‘balmy’!)

European unemployment is at record levels and growth across the Eurozone ranges from recession to 1% at best. Property markets in countries like Ireland, Spain and Portugal have seen prices fall anywhere between 40% - 80%, strikes are widespread and quantitative easing is seemingly keeping the world afloat. Stock markets, however, look like they are defying economic gravity and keep marching silently upwards.

So we are not alone. We are not the only country where people are striking for more money. Times are tough – there are strikes all over the world – and this will get worse before it gets better. Where we are different though, is that our strikers often look as though they are going to war. This is an image we have to change as it scares away foreign investors. We, as a country, do not have unlimited goodwill. Stephen Koseff, Investec CEO, recently said that SA cannot afford another six months like the last six months of 2012.