Investors need to see the government driving structural reform more urgently, says Investec South Africa CEO Cumesh Moodliar, who co-convened the South Africa Macroeconomic Summit in London this month to attract foreign direct investment (FDI) to the country.
“I feel we’re getting into the right space, but there has to be an incredible level of urgency around this. Capital simply doesn’t always wait for opportunity to come to it. It moves to the next opportunity that is available.”
Though there was a vote of confidence in South Africa’s monetary policy and fiscal credibility, it didn’t translate into FDI commitments, he says. “Investors want to see structural reform really going to the next level. And that goes to energy, transport and logistics, and crime and corruption.”
They’ve bought into the Eskom turnaround story and that renewable energy projects are coming on stream.
“But the next piece that they want to see on energy is how we deal with the transmission company. They want us to start being very clear about how we intend to get the power we generate to where it’s needed, what you need to invest in transmission, and the public-private partnerships that will be needed to do that.”
Investors sought clarity on the independence of the transmission company. There was “a level of concern” after electricity minister Kgosientsho Ramokgopa announced in December that, contrary to the Electricity Regulation Amendment Act, Eskom would maintain ownership and control of national grid assets.
“Consternation was caused. We explained that the president came out in his state of the nation address being quite clear that this will be structured along the lines of the original proposal that the transmission company will be a separate entity.”
On transport and logistics, there was an acknowledgment of the 15% increase in rail volumes from 2023/2024 to 2025/2026, “but a clear understanding that in a commodity supercycle we really need to be moving a lot quicker”, says Moodliar.
“There’s an understanding that it can be a number of years from the signing of public-private partnerships to the execution of projects, but there needs to be a greater sense of urgency about executing these projects.”
Whether there’s an awareness of this in the government and, if so, why it isn’t coming through in swifter implementation is the question.
“We’re seeing a level of urgency. There’s certainly been a strong improvement over the past two years. There seems to be more focus on execution.”
He concedes that this has not been evident in the local government space, where, as investors pointed out, the lack of government intervention undermines reforms at national level.
“If you’re faced with situations where municipal power substations are not functioning, or are blowing up or not being well maintained, all the best endeavours of Eskom to produce energy and deliver it to failing municipal infrastructure will certainly not land in the hands of an end user.
“Concerns raised are that at a national level you can see progress, but at a local government level there is failure to maintain water infrastructure, failure to maintain roads, failure to maintain energy infrastructure. That’s where the takkie hits the tar, that’s where these investors intersect with the statements we make sitting in an office in London.
“If there’s no water in their offices in Isando or the municipal transformer’s blown up because it hasn’t been maintained, we lose credibility. They’re not going to invest if there’s no functioning local government in South Africa.”
He takes as an example the Volkswagen and Mercedes-Benz manufacturing plants in the Eastern Cape.
“They represent a sub-percentage point of some of the global production taking place by both of those companies internationally. If they’re operating in an environment where the local municipality is completely dysfunctional, in an incredibly competitive global environment, how do you justify the existence of some of these plants in South Africa if you can’t give them basic services?
“We currently don’t have the capacity in the bureaucracies that need to operate in local government. The levels of corruption and malfeasance were so deep that very few people with ability were able to work in such an environment, and [they] left.”
The question is, who’s going to invest in a mafia state?
“I think there’s a recognition that there is still rule of law in South Africa, in the sense that the legal system in itself operates, even if the criminal justice system has been hollowed out and is taking far too long to bring criminals to book.”
But yes, high levels of crime and corruption in the country were “absolutely raised” by investors, he says.
“They can see that, albeit very ponderously, matters are proceeding through the justice system. They acknowledge that we’ve come off the Financial Action Task Force greylist, which is a positive. But they do want to see further execution.”
Are investors concerned about reform being derailed by politics, given that President Cyril Ramaphosa could be replaced as ANC leader next year, and then as president, by his deeply compromised deputy, Paul Mashatile?
“There’s always concern around succession. The level of comfort some investors take is that there’s been a greater institutionalisation of change in certain areas of the structural reform programme, such as Eskom and Transnet. And they’ve seen the recapacitation of the South African Revenue Service under Edward Kieswetter. So there’s a feeling that the bureaucracy of key institutions has been rebuilt.”
Were ministers attending the summit, including finance minister Enoch Godongwana, told in stark enough terms that the current pace and scope of reform is not going to attract the FDI the country needs for survival?
“The ministers at this summit have a very clear sense of the pressures they’re under and the fact that they need to execute very quickly.
“But there was also a commitment to the GNU irrespective of what the succession in the ANC might look like, and that driving the reform programme is not just up to the ANC but that there’s a broader coalition of people who want to drive this forward.”
Asked if investors are concerned about a GNU shake-up, Moodliar says: “The turning point for a lot of investors was how maturely the ANC took to losing its majority status in the 2024 election; how it honoured the rule of law; that the president stood up and said they’d honour the constitution and work to form a government for all South Africans.
“We had three senior ministers on this macroeconomic roadshow, representing the DA, IFP and ANC, who were on stage singing from the same South African hymn sheet. That came across very clearly to investors in the room, and it did not appear to be contrived in any way.”
Were all of them in unison telling investors South Africa is open for business?
“Yes. We believe we are open for business. We’re coming off a low base, we’re rich in minerals and other resources and we’re on a path to recovery.”
This is based on key metrics — such as the strengthening of the rand, falling inflation and government bond yields that have come down, reducing the cost of government debt — “that say there’s a good story to be told, we should be getting to 3% GDP growth sooner than we think”.
How can South Africa be open for business when a recent survey by the Organisation for Economic Co-operation & Development ranks the country as the worst among emerging markets for regulations that increase compliance costs and discourage businesses from investing?
“Unfortunately, I agree. Never mind FDI, the level of regulation in South Africa discourages entrepreneurs and SMEs. And we all know it is in the SME space that you create the most growth and employment opportunities.
“We’ve created complexity in the legislative environment around setting up and running a business, where we should have simplicity. We need to look at how we cut red tape, how we create an efficient operating model for entrepreneurs and SMEs to build businesses. We’re not doing enough in that space.”
There are too many regulations holding up transactions and capital deployment, says Moodliar.
“We need a far more fluid regulatory environment to build sustainable businesses, and that’s missing in South Africa at the moment.”