SA’s foreign direct investment (FDI) fell in the second quarter below that of the first as investors hunted for other destinations for their money due to rising geopolitical tension sparked by Russia’s invasion of Ukraine.
The Reserve Bank’s quarterly report, released on Tuesday, shows second-quarter FDI inflow of R26.2bn, down from R39.9bn in the first quarter, “as nonresident parent entities granted loans to and, to a lesser extent, increased equity investments in, domestic subsidiaries”.
Data shows that portfolio investment liabilities fell sharply in the second quarter, recording an inflow of R39.8bn, after a revised inflow of R60.7bn in the first quarter as foreigners’ net acquisition of debt securities outweighed their disposal of domestic equity securities. quarter
FDI inflows are an important barometer of investor confidence. Outflows suggest investors are less positive about the country’s economic prospects.
The bulletin also reflects the state of SA consumers, who were under pressure in April-June, with rising inflation driven by higher food prices, fuel costs and steeper interest rates hitting disposable income. GDP contracted 0.7% quarter on quarter in the second quarter.
Reserve Bank data shows that household finances deteriorated slightly in the second quarter, hit by higher inflation, rising debt service costs, and lower household net wealth.
Employment rose in the first quarter of 2021 in line with normalisation in economic activity, boosting income growth.
Uncertain prospects
Higher inflation eroded the growth in real personal disposable income (PDI). “Personal disposable income increased by a modest 0.2% [quarter on quarter], down from 1% [quarter on quarter] in the first quarter, and 2.6% in the last quarter of 2021,” Nedbank said.
Absa chief economist Peter Worthington said they will look out for data on household debt, disposable income and household wealth “given the uncertain prospects for the consumer”.
The Reserve Bank said growth in real final consumption expenditure by households lost further momentum as it halved to 0.6% in the second quarte, consistent with a deterioration in consumer confidence and the slower pace of increase in the real disposable income of households alongside higher consumer price inflation.
The Bank said the debt burden of households rose further in the second quarter as their exposure to most categories of credit increased. “The further increase in both household debt and debt-service cost as a percentage of nominal disposable income to 64.6% and 7.5% respectively in the second quarter reflected a combination of increased debt levels in a higher interest rate environment.”
It said that households’ net wealth fell in the second quarter as total assets decreased while total liabilities increased. The lower market value of assets reflect a decrease in equity holdings with a substantial decrease in share prices, while the value of housing stock increased. Consequently, the ratio of net wealth to nominal disposable income decreased to 359% in the second quarter of 2022, it said.
Purchasing power
Nedbank economist Johannes Khosa said household finances will remain under pressure in the short term.
“The purchasing power of income will be eroded by higher inflation and administered prices. At the same time, debt service costs will increase as the Reserve Bank continues to hike interest rates to tame inflation,” Khosa said. “Some of the pressure on income will start to ease as inflation starts to moderate in the coming months.”
He said a significant improvement in household finances will be achieved with faster employment and income growth.
“This is unlikely to be experienced in the short term, given the depressed business confidence, which is weighed by extensive power shortages and slow policy reforms, among other structural issues,” said Khosa.
Updated: September 27 2022
This article has been updated with comment from economists
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.