Thursday, December 9, 2010

South Africa a "Money Magnet"

South Africa attracted R27.6bn in capital in the third quarter of 2010, the Reserve Bank's Quarterly Bulletin showed on Thursday.

The R27.6bn exceeds the net inflow of capital in the second quarter, and brings the net cumulative inflow of capital in the first three quarters of 2010 to R98.7bn, the bulletin said.

During the corresponding period in 2009, capital inflows amounted to R92.4bn.

Inward capital flows mainly occurred in the form of portfolio investment, while inflows of direct and other investment capital remained moderate over the period.

South Africa and other emerging market economies have experienced strong capital inflows, as their markets still offer higher yields compared to developed market economies.

The bulletin forecasts that capital flows to emerging market countries are likely to persist for some time due to favourable growth prospects, among other factors.

It says governments of recipient economies are faced with the challenge of dealing with such flows and their impact on exchange rates, sectoral profitability and resource allocation.

Foreign direct investments continue to struggle, receding from an inflow of R2.9bn in the second quarter to an inflow of R1.1bn in the third quarter.

The bulletin reports that the inflow of capital in the third quarter was mainly due to an increase in loan finance extended by non-resident holding companies to domestic subsidiaries, and equity investment in a domestic paint manufacturing company.