South Africa's financials remain positive despite economic failings


The International Monetary Fund's (IMF) recent warning that South Africa's economic vulnerabilities could become more pronounced wasn't good news. Indeed, when the assessment was made in July 2017, it cast a shadow of what's already a turbulent time for the country.

With political unrest and unemployment rates closing in on 28 percent, a lot has been made of South Africa's economic strength or lack of in recent months. Based on this, economic growth rates are predicted to hit just 1 percent at the close of 2017 and 1.2 percent in 2018, but that doesn't mean it's time to panic if you're in the financial sector. Although it may seem as though the country is heading for a financial black hole, the financial services industry remains a positive place.

Why, when the country's broader economy is failing, could the financial world remain buoyant? Simple: Africa. South Africa is and likely always will be a lynchpin in the African continent. Any major deals that happen in Africa typically rise up from South Africa first. Indeed, if you consider the current state of the South Africa 40, things start to become a little clearer.

In the investment world, value is a crucial term and, according to ITWeb Financial's Richard Baker, the South Africa 40 is an index that deserves attention right now. Essentially banking on the ethos that you should buy low and sell high, Baker asserts that Africa's emerging countries are going to bolster South Africa's top 40 richest companies. What's more, because South Africa's economy as a whole is in a bad place, this point is going unnoticed by those with an interest in investing.

The driving force behind this idea comes courtesy of The Economist and its 2017 African Outlook Survey which suggests that nine of the world's 20 fastest growing economies are based in Africa. Although South Africa isn't one of them, its status in the region essentially makes it an indirect beneficiary of this growth and, moreover, the direct link to the region for international investors.

Financial companies have continued to grow
From this, Baker points to the ever-present mining industry in South Africa, but also notes that the financial sector is gaining strength. Thanks to a report by Sanlam Private Investments' director of investments, Alwyn van der Merwe, South Africa 40 companies such as Nedbank saw 15% growth and were among the country's top 20 performing businesses in 2016.

Although the reasons for growth are varied, some of the uptick can be attributed to the emerging African economies. With more money to spend, there's more to invest and that impacts companies such as Nedbank that have a strong presence across the country.

Beyond the points raised by Baker, recent moves in the cryptocurrency world could also be set to help South Africa's financial sector. Finance Minister Malusi Gigaba recently spoke positively about the growth of Bitcoin in South Africa and confirmed that the National Treasury is looking to build a framework that can support the emergence of fintech.

New opportunities in FinTech
Aside from this strategy giving more companies the chance to use Bitcoin, it would help blockchain technology proliferate across the country. This would not only benefit those directly involved in the fintech market, but all financial institutions. Indeed, if South Africa can establish itself as a fintech/cryptocurrency-friendly country within Africa, it would bolster its already strong position as a lynchpin across the continent.

Between the emergence of African economies and South Africa's desire to embrace fintech, it's safe to say that there are some positives in the current climate. Although a burgeoning economy would certainly improve things, it's clear there are ways for those in the financial sector to prosper in spite of the recent economic slump.

Related articles

Are fintechs the answer to cross-border payment pains?

During a CFO South Africa webinar, Verto experts Tim Rudman and Ola Oyetayo, as well as Hatch Africa CFO Craig Sumption, unpacked the challenges and possible solutions when it comes to cross-border payments.