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We take a look at a news release from the South African Reserve Bank which discusses South Africa's latest international investment position for the 3rd quarter of 2019, which ended in September 2019.
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Image obtained from BuzzSouthAfrica
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International investment position of South Africa as released by South African Reserve Bank
Net international investment position
South Africa’s positive net international investment position (IIP) decreased from a revised R760 billion at the end of June 2019 to R695 billion at the end of September. The decrease in the positive net international investment position reflected a larger decline in foreign assets than in foreign liabilities. Both foreign assets and foreign liabilities declined as a result of the restructuring of a large South African company. The decline in the nominal effective exchange of the rand of 4.2% over the period affected foreign assets more than foreign liabilities.
South Africa’s positive net international investment position (IIP) decreased from a revised R760 billion at the end of June 2019 to R695 billion at the end of September. The decrease in the positive net international investment position reflected a larger decline in foreign assets than in foreign liabilities. Both foreign assets and foreign liabilities declined as a result of the restructuring of a large South African company. The decline in the nominal effective exchange of the rand of 4.2% over the period affected foreign assets more than foreign liabilities.
South Africa's international investment position
Foreign assets
The market value of South Africa’s foreign assets (outward investment) declined by 4.2% from a revised R7 566 billion at the end of June 2019 to R7 247 billion at the end of September compared to a decrease of 1.7% in the second quarter of 2019. The market value of portfolio investment, financial derivatives as well as reserve assets increased in the third quarter of 2019, while direct and other investment decreased. Direct investment decreased considerably as a result of the disposal of shares in a foreign direct investment enterprise by a South African company. The South African company listed its foreign subsidiary on a foreign stock exchange and distributed some of its shares in the foreign company to its shareholders. However, foreign portfolio assets increased as a result of South African investors’ participation in the distribution of shares in the foreign company mentioned above. This increase was augmented by the decline in the nominal effective exchange of the rand and an increase of 1.2% in the US Standard & Poor’s (S&P) 500 Index in the third quarter of 2019. Other investment assets declined mainly due to the decrease in the domestic private banking sector’s foreign-currency deposits and the repayment of short-term loans under resale agreements by non-residents. The increase in reserve assets reflected the proceeds from the issuance of two international government bonds as well as the decline in the nominal effective exchange of the rand.
The market value of South Africa’s foreign assets (outward investment) declined by 4.2% from a revised R7 566 billion at the end of June 2019 to R7 247 billion at the end of September compared to a decrease of 1.7% in the second quarter of 2019. The market value of portfolio investment, financial derivatives as well as reserve assets increased in the third quarter of 2019, while direct and other investment decreased. Direct investment decreased considerably as a result of the disposal of shares in a foreign direct investment enterprise by a South African company. The South African company listed its foreign subsidiary on a foreign stock exchange and distributed some of its shares in the foreign company to its shareholders. However, foreign portfolio assets increased as a result of South African investors’ participation in the distribution of shares in the foreign company mentioned above. This increase was augmented by the decline in the nominal effective exchange of the rand and an increase of 1.2% in the US Standard & Poor’s (S&P) 500 Index in the third quarter of 2019. Other investment assets declined mainly due to the decrease in the domestic private banking sector’s foreign-currency deposits and the repayment of short-term loans under resale agreements by non-residents. The increase in reserve assets reflected the proceeds from the issuance of two international government bonds as well as the decline in the nominal effective exchange of the rand.
Outward investment in South Africa
Foreign liabilities
The market value of South Africa’s foreign liabilities (inward investment) declined by 3.7% from a revised R6 806 billion at the end of June 2019 to R6 552 billion at the end of September following an increase of 2.4% in the second quarter of 2019. The lower level of foreign liabilities reflected a decrease in portfolio investment while all other functional categories increased marginally. A decline of 5.8% in the FTSE/JSE All-share index in the third quarter, net sales of domestic equity securities as well as the reduction in the value of a large South African company as a result of the distribution of some of its shares in a foreign company, as mentioned under foreign assets, contributed to the lower value of portfolio investment in equity securities. The value of portfolio investment debt securities increased with the effect of the issuance of two international government bonds, only slightly countered by non-resident net sales of domestic debt securities. The increase in other investment liabilities resulted mainly from non-residents increasing their foreign-currency deposits with the domestic banking sector, while direct investment increased as a result of an increase in debt financing.
The market value of South Africa’s foreign liabilities (inward investment) declined by 3.7% from a revised R6 806 billion at the end of June 2019 to R6 552 billion at the end of September following an increase of 2.4% in the second quarter of 2019. The lower level of foreign liabilities reflected a decrease in portfolio investment while all other functional categories increased marginally. A decline of 5.8% in the FTSE/JSE All-share index in the third quarter, net sales of domestic equity securities as well as the reduction in the value of a large South African company as a result of the distribution of some of its shares in a foreign company, as mentioned under foreign assets, contributed to the lower value of portfolio investment in equity securities. The value of portfolio investment debt securities increased with the effect of the issuance of two international government bonds, only slightly countered by non-resident net sales of domestic debt securities. The increase in other investment liabilities resulted mainly from non-residents increasing their foreign-currency deposits with the domestic banking sector, while direct investment increased as a result of an increase in debt financing.
Inward investment in South Africa
Concluding comments
South Africa’s positive net IIP decreased as the market value of foreign assets decreased by more than foreign liabilities. As a ratio of South Africa’s annual gross domestic product (GDP), foreign assets decreased from 152.1% at the end of June 2019 to 144.4% in September, while foreign liabilities decreased from 136.8% to 130.5% over the same period. This resulted in a decline in the positive net IIP to 13.8% of GDP at the end of September 2019. South Africa’s IIP as at end December 2019 will be released on the Bank’s website at the end of March 2020.
South Africa’s positive net IIP decreased as the market value of foreign assets decreased by more than foreign liabilities. As a ratio of South Africa’s annual gross domestic product (GDP), foreign assets decreased from 152.1% at the end of June 2019 to 144.4% in September, while foreign liabilities decreased from 136.8% to 130.5% over the same period. This resulted in a decline in the positive net IIP to 13.8% of GDP at the end of September 2019. South Africa’s IIP as at end December 2019 will be released on the Bank’s website at the end of March 2020.