Since the release of a damaging report on state capture by the outgoing Public Protector Thuli Madonsela in 2016, and particularly in the last two years since emerging from the COVID-19 pandemic, the extent and reach of the malaise throughout the organs of government have become all too clear. This, together with uncertainties created by the war in Ukraine, inflation rates, looming recession, a weakening domestic exchange rate, foreign policy blunders, and the recent ‘greylisting’ of South Africa have forced investors to place more scrutiny on their investment domiciling decisions.

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Although ratings agency, Fitch recently held SA’s credit rating at BB- (three steps below investment grade), it warned that further big increases in government’s debt-to-GDP ratio could lead to a further downgrade. The IMF is forecasting GDP growth of 0.3% in 2023, against 1.9% in 2022, due to severe power shortages – lagging far behind the 4% average at which the IMF sees emerging markets and developing economies growing in 2023. The Reserve Bank estimates that power cuts trimmed between 0.7% and 3.2% off the GDP growth rate in 2022, and that supply disruptions will cut 2% off output growth in 2023.

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The M&A industry is known for its solutionist thinking, and the articles carried in this issue make for interesting reading. Stats SA has put the unemployment rate at more than 40% for those in the 25 to 34 year old age bracket, requiring that South Africa look at alternative investment mechanisms to address this urgently (pg 53). Another article considers the Office of Foreign Asset Control (OFAC) guidance and enforcement actions in the M&A context, and outlines a South African perspective to mitigate OFAC risks (pg 56).

Looking ahead, the local equities and the SA bond markets offer value to potential investors relative to their international counterparts – but investors will continue to be circumspect, with much depending on SA’s ability to extract itself from the quagmire in the months ahead.