Why South Africa ranks as the 11th riskiest place in the world to invest

The Bank of America Merrill Lynch recently published new data that ranks countries according to how risky they are.

The ranking comes from how likely it is that a country will default on its sovereign debt.

South Africa ranks just outside the top ten.

Let's take a closer look at what this means for SA…

The risk of defaulting on sovereign debt

Bank of America Merrill Lynch’s map of credit default risk is most definitely interesting. It shows data for almost 40 countries.

At the top of the list is Venezuela, followed by Greece and Ukraine, notes Business Insider. South Africa comes 11th, sitting between Turkey and Vietnam.

The data reflects how likely it is that a country will default on its sovereign debt. Bank of America Merrill Lynch works this out according to credit swaps, adds Business Insider.

Why this is bad news for South Africa

Appearing so high up on the list is bad news for South Africa. For foreigners thinking about buying the country’s bonds, if they don’t feel the rate of return on these bonds is worth the risk, they won’t buy.

This data adds another dimension to the performance of the rand. If investor sentiment in the country is so negative, investors are going to be wary of a country looking risky when there are safer options available.

Not helping this is the state of the South African economy as it struggles to grow.

South Africa’s struggling economy

Last week, Moody’s warned that the country’s “growth prospects were at risk” thanks to problems generating enough electricity and “troubles in the mining sector,” reports Business Tech. The credit agency also warned against the SA government continuing to bail out the likes of Eskom, which is negatively impacting on state spending.

A World Bank study released on Monday said to grow the economy, South Africa needs to wipe 75% off unemployment over the next 15 years, notes iAfrica. And it needs to improve “the quality of basic education and skills acquisition”.

Foreign investors want to see a country showing promise and economic growth. With the issues facing SA at the moment, it’s easy to see why some investors would rather invest elsewhere.


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