Capital flight, plunging Rand = More SA owned assets abroad than flowing in

A small terribly important statistic is revealed in the Bloomberg article below. For the first time ever, the value of South African-owned assets outside of the country exceeded the annual inflow of funds into it. This kind of statistic sets the alarm bells ringing. As a developing country with massive challenges, South Africa needs all the capital it can get. But when the data proves its own citizens prefer to send their money out of the country rather than invest locally, and foreigners prefer other geographies, we have entered a vicious downward spiral. Something is seriously wrong. Serious reflection is required. Rhetoric and a succession of economic own goals by Soviet-style leadership are having a destructive impact far beyond what is appreciated by the political leadership. Capital is cowardly. It only flows where it is safe and has the potential to grow. Neither of which, right now, is on South Africa’s economic agenda. – Alec Hogg   

By Rene Vollgraaff

(Bloomberg) — The value of South African assets abroad outstripped foreign investment into the country for the first time on record — thanks to the rand’s slump.

South Africa's banknotes, which features an image of former president Nelson Mandela on the front in Pretoria November 6, 2012. REUTERS/Siphiwe Sibeko
South Africa’s banknotes, which features an image of former president Nelson Mandela on the front in Pretoria November 6, 2012. REUTERS/Siphiwe Sibeko

The difference between South African foreign assets and liabilities swung to a surplus of 113 billion rand ($7.2 billion) at the end of September from a deficit of 131 billion rand at the end of June, the central bank said in a statement on its website on Dec. 31. That’s the first positive reading since the Pretoria-based bank began recording the data at the end of 1956.

Read also: SARB Governor Kganyago: We won’t defend the Rand, it’s pointless

“The volatility and decline in domestic and global equity markets as well as the significant decline in the end-of-period exchange rate of the rand resulted in a respective modest decline in foreign liabilities and a substantial increase in South Africa’s foreign assets,” the Reserve Bank said.

The rand plunged 25 percent against the dollar last year, the worst performance after Brazil’s real among major currencies tracked by Bloomberg. The South African currency has been under pressure because of a slump in commodity prices, lackluster economic growth and rising interest rates in the U.S. It fell to a record low of 16.0543 against the dollar in December after President Jacob Zuma unexpectedly fired his finance minister.

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