"South's Africa's economy is in dire straits and nothing is going to change that direction in the short term."
That was the recent analysis of the country's economy by senior finance lecturer at the University Of Cape Town Graduate School Of Business, Dr Sean Gossel. Talking to Marketplace.org, Gossel pointed to political unrest, an unemployment rate touching 27% and a general feeling that South Africa is careering towards a cliff edge with no solution in sight.
For those on the ground, it may look as though chaos is about to ensue, but as an investor this sort of situation should be seen as an opportunity. Although economic turbulence is never desirable, the value of the South Africa 40 index remains strong because companies on it have a chance to overcome the current rut and not only bring in more money to the economy, but reward investors.
Africa Needs South Africa
Indeed, according to ItWeb Financial, South Africa's financial index shows that it's a country that "deserves your attention" if you're a trader. Why? Put simply, the country is still the most powerful in the region and that makes it a lynchpin for companies already on the South Africa 40 as well as international companies looking to break into an emerging market.
According to The Economist's 2017 African Business Outlook Survey, nine African countries are among the 20 fastest growing economies in the world at the moment. In this instance, South Africa is a direct connection to these countries. Naturally, for those companies already based in the region, this is fantastic. Take, for instance, Gold Fields mining company.
Listed among the South Africa 40 as well as on the Johannesburg Stock Exchange, Gold Fields already has a strong presence in South Africa and its surrounding countries. As economies in the region grow and expand, natural resources are going to become much more important and Gold Fields is perfectly placed to meet these needs. This, in turn, will bolster the company's profits, increase its value and, therefore, pay dividends to investors.
Internal and International Companies Are Crucial for SA
Beyond this, you can look at foreign companies such as Australia's BHP Billiton Limited and their influence within South Africa. Among the South Africa 40, BHP Billiton Limited is an example of an international company investing in South Africa not only as a means to generate business from the country in isolation, but gain a footing in the African market as a whole.
Essentially, what we're seeing here is two levels of investment. On the one hand you've got South African companies generating revenue through corporate and individual investments. On the other hand, you've got international companies investing resources within South Africa as a means of accessing the emerging African market.
The upshot of this is that investors are still hot on South Africa despite its flagging economy. If this is true, then it offers the country a glimmer of hope outside of any political turmoil. In simple terms, if Africa is strong, then South Africa can be strong thanks to its global standing and the major companies it houses. Indeed, if investors and the like continue to view South Africa as the link into a potentially lucrative market, then the country has a chance to claw its way out of a financial black hole at any time.