Global CFOs rally behind SA - TechCentral

Global CFOs rally behind SA

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In a strong vote of confidence in South Africa, the International Association of Financial Executives Institutes (IAFEI) on Wednesday announced it will host its 46th World Congress of CFOs in South Africa in November.

The global CFO body announcement comes despite growing political uncertainty ahead of local government elections in August and as South Africa awaits the credit ratings review from S&P Global Ratings on Friday.

The IAFEI represents more than 20 member countries and the world’s leading and respected CFOs.

Ratings agencies S&P and Fitch both rate South African debt one level above junk, with negative outlooks on its BBB- assessment.

A downgrade in an already ailing economy will signal a riskier investment climate and will have dire consequences for borrowing costs, foreign direct investment and employment.

With this move, the IAFEI has endorsed South Africa as a key player in global financial markets and the preferred investment gateway into Africa, said SA Institute for Business Accountants’ CE Nicolaas van Wyk.

“There seems to be a ‘mismatch’ with the rating agencies’ assessment of South Africa’s growth prospects, and the view of multinational company CFOs.

“It is evident that global finance leaders will not be deterred by whatever decision is reached by ratings agencies,” he said.

The world has undergone a period of natural selection, but it is now time to find a new path for growth and Africa can become the great continent of hope by unlocking its potential, said Van Wyk.

According to him, Africa attracted US$73,5bn (R1,1 trillion) in foreign direct investment in 2015. In the next 15 years, 370m youth will enter the job market. By 2050, Africa’s population will be 2bn people.

“As CFOs of the world’s largest companies we need to ensure that development takes place at the local level and in a fair manner. The world’s global economic system is teetering on the brink due to mass migration, population growth, growing unemployment and huge debt burdens,” said the IAFEI.

The CFO body believes the global CFO community can no longer just rely on politicians and governments to solve the world’s problems and they need to play a stronger role in mapping the path to recovery.

Fin24

9 Comments

  1. “With this move, the IAFEI has endorsed South Africa as a key player in global financial market…”
    This is good news, but I fail to see why having a meeting here indicates and endorsement. The economy could be total junk, but it could still be a nice place to host a conference. The story gives no indication that the CFO’s are investing here. They just utilise a good venue.

  2. Matthys Jacobs on

    Essentially the financial market sector is too sophisticated to ignore especially with regards to entering infrastructure investment deals into the rest of Sub Saharan Africa.

    From a regional and global perspective we have the 13th largest exchange in the world and from a market cap perspective, we have the 17th largest in the world larger than Spain, Taiwan and Brazil even though those economies are multiples of ours. Even if South Africa is downgraded I can’t see us losing the preferred investment gateway access into rest of Africa. The Banking Sector in other African countries are tiny compared to South African Banking especially Investment and Corporate Banks.

  3. I agree with you and the facts you state are interesting.
    My criticism is that the story does not explain if the IAFEI chose SA because of its economic importance or quality and cheap conference facilities. They allude to the former, but give no evidence.

  4. Matthys Jacobs on

    Oh right, I understand.

    So the IAFEI has mentioned a number of times, they think the rating agency views are out of sync with economic activity in SA especially within Financial markets or our larger industries such as NASPERS et al.

    So some CFO’s specifically within the financial industry more so in the US and some EU financial houses are saying that all the downgrade will lead to is adding a cost burden to investing throughout Sub Saharan Africa and require the need of central clearing of deals to be done either in London or the US (probably London) but at a sterling based cost. So CFO’s would be against a downgrade, if when compared to brazil which has been in consecutive recessions and depleted the majority of their reserves and have banks that are under capitalized whereas in South Africa the major Banks are well capitalized according to current BASEL 2 stipulations, one could even say they are prepared for BASEL 3 even though the date for regulations to go live is 2019.

    The rating agencies according to some CFO’s are shifting goal posts whereby in the past they looked at Policies, GDP Growth, Credit Market, Bond Market, Equity market etc, they seem to be looking at other aspects like internal politics as well which is harder to forecast accurately and would be moot in terms of how it affects credit events. Also, it’s not based on a standard formula so this is where most CFO’s are pointing towards.

    Also given Junk bonds volume trading has surpassed investment grade bod volumes excluding US T-Bills it shows that the market is also out of sync with the ratings view.

    But one has to go back in history to see why, during the 2008 Credit Crisis the Ratings Agencies had their reputation torn to shreds since they initially listed bad debt as high valued AA and AAA and were found guilty and had to pay significant fines for this so one could argue they are either over reacting or putting in higher standards although if one looks at EU and some US finance houses they haven’t applied it on a standard.

    I suppose the author of this article could have taken the time to actually articulate the view more concisely because at first glance it seems he just extrapolated the view.

    Do you have a bloomberg terminal account (non public)?

    Because I noticed the original view was taken off bloomberg.

    It’s a poorly written article but it’s from a technology blog news site so I don’t think we can expect much more.

  5. Very interesting Matthys, thank you!
    I guess the public and political opposition are latching onto the threat of downgrading to lobby government to act more responsibly.
    Edit: You should write a short article on the business of rating agencies. I am sure TechCentral would like to publish it!

  6. Regarding the quality of the article: it was syndicated from Fin24, who has no excuse for shoddy financial journalism.

  7. Matthys Jacobs on

    Media24 generally lacks good journalists.

    We don’t even allow them to take comment from us even with payment which sued to be between R20,000 to R80,000 depending on the comment and length.

    You should instead focus on Reuters or Blomberg, they do have a South African team as well.

  8. Matthys Jacobs on

    Definitely, but any opposition party would. I somehow doubt that many in opposition know what a downgrade entails and have no idea about the history of junk bonds let alone how Salomon Brothers revolutionized its trading. Contrary to popular belief, it’s actually highly profitable.

    If I did that, it would be in my private capacity but do be honest this type of information is publically available.

    We also put out research papers which ordinary people could access to.

    There are a number of analysts that put out good papers weekly.