Goldman bets on Ramaphosa to open investment floodgates for SA

By Roxanne Henderson and Amogelang Mbatha

(Bloomberg) – South Africa must make progress on structural reforms before banks like Goldman Sachs Group can help draw foreign capital to the country.

“To the extent that these changes do happen, the ability of investors to ramp up their involvement in this economy is very significant,” Jonathan Penkin, the Wall Street firm’s head of sub-Saharan Africa, said in an interview in Johannesburg.

“At the moment they’re taking a bit of a wait-and-see approach.”

While President Cyril Ramaphosa repeatedly talks of the challenges facing the moribund economy, he has yet to deliver the overhaul business leaders say is needed to resuscitate growth. He has balked at plans to rescue South African Airways and has little to show on addressing the state-owned power utility’s debt, or other measures, such as the sale of telecommunications spectrum and easing an onerous visa regime.

Greater confidence among chief executive officers in the economy would help spur investment by domestic companies, said Penkin, who replaced Colin Coleman at the end of 2019.

The US lender, which has a 20-year history of providing advisory services in the country, can plug into its global network to help bring more foreign capital into country, he said.

“While I wouldn’t say it’s going to happen tomorrow, if there is an economy in which investors would be delighted to jump back in with both feet, more than in most other emerging markets globally, it’s South Africa,” Penkin said. “That’s because I think the companies and managements by-and-large remain of incredibly high quality.”

Goldman Sachs is expanding in the continent’s most developed economy by adding fixed-income and foreign-exchange products aimed at corporate and institutional investors to its existing investment-banking services. It will offer over-the-counter derivatives as soon as regulatory licensing processes are completed, he said. Goldman Sachs in May last year partnered with Investec on equity trading.

Here are more highlights from the interview:

On South African bonds:

  • “The yields that are available on South African government debt are real and attractive.”
  • “While it’s easy to get caught up with the deluge of bad news, South Africa remains a large and important part of emerging market flows.”
  • Investors “are probably more engaged now” on South African debt than its stocks.
  • “I am hoping that my own background in equity capital markets will stand us in good stead when sentiment turns and equity investors starting looking to close their underweight position and companies require equity capital.”
  • “If you take the retail space, which is obviously a space that has suffered damage in terms of their rating and a very unfriendly growth rate, it is still something that is still followed very strongly by foreign investors.”

On Goldman’s South African business:

  • “On the investment banking side we are always looking for good people. One of my primary tasks is to ensure the connectivity between Goldman Sachs in South Africa and the rest of the world.”
  • “Could we decide to open our own equities brokerage here? That’s definitely not our plan and we are thrilled with the progress made in our strategic cooperation agreement with Investec, in which we think both partners are adding value to each other.”
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