Eaton Vance warns South African investors

Investors interested in making investments in South Africa should proceed with caution as the situation remains dire, and it is crucial that the country continue to introduce reforms, according to the Global income and Emerging Markets Debt teams.

The firm described South Africa’s economy under former president, Jacob Zuma, as the downward trajectory. However, with the new president, Cyril Ramaphosa, who succeeded Zuma this year, the International Monetary Fund (IMF) put together a report indicating how steep the country would need to climb.

At the same time, the markets appreciated the initial efforts by the new president aimed at fostering and creating a more favourable environment to private investment, growth, job creation and social inclusion.

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“Our findings are in agreement with the IMF's. The country entered recession in September and joblessness is over 37 per cent (including those who have given up looking for work). The rand has lost more than 20 per cent against the U.S. dollar since the start of the year,”the manager said in a note.

“The IMF noted that economic reforms in a number of areas, in particular, strengthening the finances of state-owned enterprises (SOEs), reducing the cost of doing business and increasing competition, are proceeding, albeit slowly.”

The IMF staff also made the new following recommendations:

• Address governance issues, improve state-owned enterprises (SOEs).

• Ensure wage negotiations/salary increases are aligned with productivity gains; reduce hiring/firing restrictions, improve vocational training.

• Promote competition: Mining Charter is an improvement; allocating broadband spectrum should be executed expeditiously.

• Clarify policy proposals: Land reform should enhance agricultural productivity; proposals to nationalize the SARB should be reconsidered.

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