Why Capital Flows into South Africa slowed in Fourth Quarter of 2014
What: According to the Reserve Bank’s Quarterly bulletin released earlier today- Tuesday March 17th 2015, capital into South Africa Slowed in fourth quarter as a proportion of GDP. The figures showed capital flows slowing down to 2.4 percent of Gross Domestic Product (GDP), or R23.3 billion from 6.1%, or R58.3bn, in the third quarter, the report showed on Tuesday.
Why: Fears of what will come out of the US FED monetary policy has been a major factor. According to the bank capital flows to most emerging markets tapered off in 2014 amid speculation about the timing and pace of the US Federal Reserve’s monetary policy tightening and the implied policy divergence with the euro area and Japan.
“Capital flows to emerging markets were also affected by the sharp drop in the international price of Brent crude oil in the fourth quarter of 2014 and the concomitant uncertainty in that market,” the Bank said in the bulletin.
Announcements of further quantitative easing from the European Central Bank and the Bank of Japan countered these factors.
For 2014 as a whole, the financial account recorded a sizeable net inflow of capital amounting to R155.8bn from R130.4bn in 2013.
“Net capital inflows into SA in 2014 mainly took the form of net other investment, largely driven by excess international liquidity,” the Bank said.
So what: South Africa remains an attractive investment destination despite the challenging local and global climate. However, for South Africa to continue to attract significant foreign investment, it must improve local challenges like energy and labour issues. Speculations are that if the US Federal reserve, starts increasing interest rates more FDIs will be diverted to the US and other less risky economies.