5 Key Risk Factors Driving Investor Decisions In South Africa In 2016

South Africa’s economy, the second largest on the continent, has come under heavy headwinds in the last year or so, with many sectors facing uncertain times.

A weakening rand due to a fall in metal prices on the international market and China’s economic slowdown are some of the factors affecting the most industrialized African nation.

These factors and others have affected the way foreign investors looking to or with investments in the country are making their decisions this year.

Some like Barclays have decided to cut their losses and exit the market, while others like Starbucks are looking to set up more shops there.

While announcing its plan to sell down its stake in Barclays Africa, an entity it jointly owns with South Africa’s Absa, London-based Barclays cited tough operating environment in the country as one of the reason why its board of directors reached the decision.

In its RiskMap 2016 [pdf], global risk analysis firm Control Risk has come up with some of the top risks facing investors in South Africa. Most of the risks are gloomy and paint a picture of a stagnating economy and uncertain political future.

Despite all these, Control Risk still see South Africa as a good place to do business and far much better than its regional counterparts.

According to them these are the factors companies looking to invest in South Africa should consider:

Risk 1: Stagnating Economy

South Africa’s bonds are headed for a ‘junk’ rating status and there is nothing that can stop that now. Lack of reliability by different government factions within the ruling government is sending mixed messages to global rating agencies and soon they will have no choice but to downgrade the country.

“The lack of details around specific cost-cutting mechanisms and populist pressures against significant restructuring of state-owned enterprises means that the downgrade risk will persist,” George Nicholls, senior managing director of Control Risks Southern Africa, told a media briefing on Monday, IOL reported.

Risk 2: High Levels Of Crime

While South Africa has plenty of excellent legislation, enforcement is still very patchy. It doesn’t help that the police and prosecuting authority have become politicized, undermining their effectiveness and their ability to uphold the rule of law. White collar crime and corruption are also on the rise in the country.

Risk 3: Increasing Social Unrest

Control Risk expects protest to erupt in low income areas due to increasing food prices as one of the worst drought ravages the country. Rising food prices would likely prompt an increase in social unrest, the report said. A rise in electricity tariffs later this year is also likely to drive up inflation.

Risk 4: Regulatory Uncertainty

While the government has been trying to make the country attractive to investors, lack of focused regulatory changes and politicization of some of its policies has left many investors confused and that’s not good for the business climate.

Risk 5: Cyber Vulnerabilities

South Africa is in no position to defend itself or its businesses against cyber crime. Last year, more than R2-billion ($130 million) was lost to cybercrime, making this a major criminal threat. In fact, South Africa is the most targeted country in Africa. Unless the government works with businesses to educate them, and initiates some kind of protection programme, it won’t make up the ground already lost against the hackers — leaving both companies and individuals vulnerable.