Foreign assets good news for SA

SA’s net balance of foreign assets ownership increased, driven by valuation effects as domestic and foreign share market indices rose in the first quarter, improving the country’s financial standing and creditworthiness.

The Reserve Bank released its second-quarter quarterly bulletin on Thursday, showing that SA’s net international investment position improved, rising from R1.2-trillion at the end of December to R1.7-trillion at the end of March as foreign assets increased more than foreign liabilities.

This second-quarter bulletin reflects market valuations for the first quarter (the three months to end-March) but foreign direct investment (FDI) for the second quarter.

The development could be seen as good news for SA as the balance of a country’s foreign assets to liabilities or its international investment position is an important barometer of its financial condition and creditworthiness. It is used to measure how financially open a country is and how sustainable its external debt is. A negative figure indicates that a country owes more to foreign entities than it owns foreign assets, making it a debtor nation.

The Bank attributed the change to higher share price indices at home and abroad, as well as the exchange value of the rand, the nominal value of which fell 5.3% on balance.

Bank data shows that as a ratio of SA’s annual GDP, foreign assets increased from 131.6% at the end of December 2022 to 139.5% at the end of March 2023, while foreign liabilities increased from 113.3% to 114.2% over the same period.

“This resulted in an increase in the positive net international investment position from 18.2% of GDP at the end of December 2022 to 25.3% at the end of March,” the Bank said.

According to the bulletin, the market value of SA’s foreign assets, or outward investment, increased 7.4% from R8.721trillion at the end of December 2022 to R9.37-trillion at the end of March.

This reflected an increase in all functional categories, except financial derivatives.

Direct investment assets increased as a result of valuation effects from the higher share

price of a large dual-listed company with a primary listing abroad.

In addition, portfolio investment assets increased owing to a rise of 7% in the S&P 500 index as well as in other foreign share market indices, while reserve assets increased due to the valuation effects resulting from the depreciation in the exchange value of the rand.

The bulletin shows the market value of SA’s foreign liabilities, or inward investment, increased 2.1%, from R7.512trillion at the end of December 2022 to R7.671-trillion at the end of March 2023.

The increase in foreign liabilities reflected an increase in all functional categories, except financial derivatives.

The Bank said that owing to an increase of 4.2% in the FTSE/JSE all share index in the first quarter, valuation effects contributed to the increase in both direct and portfolio investment liabilities. It added that the issuance of an international bond to the value of $1bn by a public corporation also boosted portfolio investment liabilities in the first quarter.

Other investment liabilities increased due to drawdowns on long-term loans by public corporations and short-term loans by the private nonbanking sector as well as the national government receiving a €300m loan in support of funding for climate change initiatives.

With regard to foreignowned assets in SA, the bulletin shows SA recorded FDI inflows of R53.8bn ($2.8bn) in the second quarter, up from inflows of R0.5bn in the first quarter.

The Bank said the acquisition of a domestic beverage company by a nonresident firm contributed to the increase.

Portfolio investment liabilities recorded a smaller outflow of R4.6bn in the second quarter, following an outflow of R32bn in the first quarter.

Nonresidents’ net sales of domestic debt securities of R18.7bn in the first quarter switched to net purchases of R23.2bn in the second quarter, while nonresidents’ net sales of domestic equity securities rose from R13.3bn to R27.8bn over the same period.

Other investment liabilities switched to an outflow of R52.9bn in the second quarter, from an inflow of R13.1bn in the first as the domestic private nonbanking sector’s repayment of loans to nonresidents outweighed nonresidents’ deposits in the domestic banking sector as well as receipt of a $500m Sanral sustainability loan.