Strong democracy resonating with investors, says central bank head

folarin okunola

April 22, 2016 7:05 PM

The $1.25 billion 10-year bond -- issued to help finance medium-term foreign currency commitments -- was more than two times oversubscribed, with buyers from Europe and the United States predominating, the treasury said two weeks ago.

South African bank notes featuring images of former South African President Nelson Mandela (R) are displayed next to the American dollar notes in this photo illustration in Johannesburg August 13 2014. REUTERS/Siphiwe Sibeko

Strong demand for a sovereign bond issue earlier this month shows foreign investors are acknowledging the robustness of South Africa's democratic institutions and its sound economic fundamentals, the head of its central bank said.

South African Reserve Bank governor Lesetja Kganyago told CNBC Africa in an interview on Thursday that this was a sign of investor confidence.

"Monetary and fiscal policy are acting in sync, and these things do not go unnoticed by global financial markets," he said.

"...We have actually able to get the investor community re-interested in South Africa."

Investors have said their faith in South Africa's institutions had been somewhat restored following a court ruling against President Jacob Zuma.

The president survived an impeachment vote earlier this month after the Constitutional Court said he breached the law by ignoring an order to repay some of the $16 million in state funds spent on renovating his private home.

"When people analyse the credit matrix of a country, they trend to reduce it to a number... They forget a very important component of the credit matrix and that is the strength of institutions," Kganyago said.

"The robustness of these institutions has been tested and ...(they have) passed with flying colours."

Kganyago, Finance Minister Pravin Gordhan and other government officials, executives and trade union leaders have been on overseas road shows anxious to reassure investors about continuity in fiscal policy after Zuma changed finance ministers twice in less than a week in December, triggering a run on the rand.

"I talk to investors all the time and its is very clear that the South African message is now getting understood," Kganyago said.

Kganyago said ratings agencies would also do well to consider South Africa's democratic institutions.

The agencies, most recently Standard & Poor's, have warned they might downgrade if political issues divert the government's attention from properly implementing policy. S&P and Fitch both rate South African credit just one notch above junk, while Moody's is two notches over sub-investment grade.

folarin okunola