As Covid19 and the effects of adjusted level 4 continue to take their toll on South Africa, no one imagined that we would face extensive economic destruction caused by violence and looting in some of the financial hubs of the country.
The government has spent a few years fighting for foreign investment to reduce the unemployment rate and hike the economic growth, only for the effort to be burned down by the lawlessness on the ground.
While foreign investors are likely to sit on the sidelines to see how South Africa responds to the current situation, South African companies will move quickly toward restoring what they have lost. It will be the deciding factor for international investors and whether they put their money back into SA, according to Jacko Maree, who served as Standard Bank Group chief executive for 13 years.
“That is what foreign investors will look at primarily because when you’re looking at building a factory, or a mine or renewable energy plant, the destruction of physical property will be your biggest concern,” he said.
In eThekwini alone, more than R15 billion worth of damage to property and equipment has been estimated, according to eThekwini ECOC, and more than 40 000 businesses have been affected. Given rise to real concerns that the instability will affect investor confidence at a time when South Africa needs it the most. But some business analysts have been less pessimistic than expected.
“I don’t think this will have a material effect on investors as they understand the risks. We are an attractive market with sophisticated institutions and financial markets,” Nick Binedell, the founding director of the Gordon Institute of Business Science of the University of Pretoria, told Independent Media.
The bulk of the damage caused by the riots accrues to the property and retail sectors. Redefine Properties Limited (Redefine), a South African-based Real Estate Investment Trust (REIT), indicated that 2% of their overall property portfolio is impacted directly by the unrest but stressed that they are comprehensively insured.
Pepkor noted that 489 of their stores – including the HiFi Corporation, Rochester, Shoe City, Pep and Ackerman brands were looted and damaged, equating to 9% of their retail footprint. But, the process to clean up, reopen and restocking stores have started. With one Pepkor distribution centre also looted, the supply chain remains severely disrupted, but the vast majority of the stores remains operational and insured for damages and losses incurred. Regardless, Pepkor share price was up 1.3% and closed on R19.36 on Friday, 16 July.
The unrest may also have had a role to play in the decision by Moody’s to downgrade the debt ratings of three of South Africa’s municipalities, namely City of Cape Town, City of Johannesburg, and City of Ekurhuleni. Most sectors of the JSE are relatively unaffected by the unrest, mainly due to the offshore nature of the companies’ operations and the fact that the unrest was contained to only some parts of the country.
A few mining companies have declared force majeure on some of their customer contracts due to disruptions on the roads and ports in KZN. However, these contracts form a small part of the operations of the mining companies. For the most part, therefore, no major changes in investment strategy are warranted at this point.
The recovery efforts we have seen are indicative of the tenacity of South Africa and its people. South African retail will lift its head and come back stronger with more tactical plans in place.