South Africa Incorporated used to owe the world more than the value of assets it owned abroad. However, since 2015, South Africa has had a positive net international investment position. This is despite a persistent current account deficit that must be financed from abroad given our low domestic savings rate.
The build up of a net foreign asset position has reflected a sharp decline in inward-foreign direct investment (FDI), higher FDI by South African companies, and a pre-COVID-19 pandemic shift to a net asset position in foreign portfolio equities. The latter reflects strong price increases in South Africa’s foreign assets (think the performance of Naspers’ global internet investment business) and favourable valuation changes from exchange rate changes (rand depreciation boosting the rand value of foreign currency denominated foreign assets). But like the withdrawal of capital by foreigners since 2016, the build up of a foreign FDI asset position likely reflects a weakening of confidence in the South African economy. This also raises concern around whether South Africa will continue to finance its current account deficit as easily as it has over recent years.
