Growing Investor Confidence in S. Africa Boosts Financial Markets

THE visit to South Africa this weekend by United States Secretary of Commerce Ronald Brown is likely to further stimulate growing US investor interest in the country as it enters the critical phase of transition to a nonracial democracy.

``The recent reaction of South African markets indicates intense interest by speculators and hedge funds in the US,'' says a Johannesburg stockbroker. ``Direct investment is going to take longer, but the interest from bankers, US institutions, and the private sector raises the prospect of significant engagement after the April 27 election if they bring greater political stability.''

Mr. Brown, who will be accompanied by 25 executives of US corporations, as well as senior US government officials, will meet South African private sector and political leaders. They will focus on ``black-owned enterprises which will contribute to South Africa's post-apartheid, nonracial market economy,'' he says.

Last week's accord by multiparty negotiators on an interim Constitution and five years of coalition rule following the country's first nonracial ballot in April next year, boosted South African financial markets and created a wave of optimism as the economy shows signs of emerging from a two-year recession. The renewed foreign interest in industrial shares took stock indexes to record levels.

``While foreigners are sensitive about violence ahead of the election, they are extremely bullish on economic prospects and are looking for any industrial leaders,'' says one equity dealer.

Growing confidence in South Africa was also reflected last week in the strengthening of the financial rand, the discounted unit of the South African currency that foreign investors must use, and in the surge of interest in futures markets.

The Johannesburg Stock Exchange, one of the world's 10 largest equity markets, has been buoyed by US investors since the end of September when African National Congress (ANC) President Nelson Mandela called for the lifting of economic sanctions and the re-engagement of the US private sector in South Africa.

During the decade of economic sanctions, which formally ended Tuesday when President Clinton signed legislation removing federal sanctions, about 200 US companies left South Africa.

The renewed interest in South African stocks and bonds prompted the authoritative financial daily, Business Day, to predict in a recent editorial that the country could be heading for an economic boom.

``The stock market's performance reflects investors' belief that the economy and business have significant growth potential,'' the newspaper said. It added that adjustments to the economy during the sanction years had left the economy with ``considerable room for domestically led growth.''

The newspaper urged an ANC government not to succumb to the temptation of intervening in the economy if the pace of growth is not perceived as fast enough to meet the soaring economic expectations of soon-to-be enfranchised black South Africans.

``Our success will depend on achieving an economic consensus to match the political one,'' Business Day said.

The ANC is expected to spell out its economic policies at a conference on reconstruction and development in January.

In the past three years it has moved substantially away from interventionist policies such as nationalization toward the principle that redistribution to eliminate the backlogs of the apartheid era must be driven by economic growth.

But investors are still wary of the ambiguous message that emanates from the ANC's economic policymaking forums and, particularly, on the role of the more militant trade unions and the South African Communist Party in determining economic policy in the future.

``If there is any attempt by the state to bring about these changes through coercion, the result will be a continuing decline in growth rates - as capital and skills drain away - and, in the end, the transition to a nonracial democracy will fail,'' says Ronnie Bethlehem of the South African Chamber of Business.