South Africa

Country Summary

Economic performance and outlook: Since 2012, following the sharp decline in international commodity prices for the country’s four key exports—coal, platinum, iron ore and gold—economic growth slowed, compounded by domestic structural weaknesses and subdued investor confidence. After reaching 3.3% in 2011, growth fell to 0.3% in 2016. Growth in output from the country’s key sectors, including manufacturing, dropped from 3% in 2011 to 0.7% in 2016; the contraction in output from mining increased from 0.7% to 4.7% over the same period. Medium-term growth prospects remain subdued; economic growth is was estimated at 0.9% in 2017 and was projected to reach 1.1% in 2018 and 1.6% in 2019. 

Macroeconomic evolution: The consolidated budget deficit deteriorated to an estimated 4.3% in 2017 from 3.3% in 2016 as a result of revenue shortfalls. Total public debt is increased to an estimated 54.2% of GDP in 2017 from 50.7% in 2016 but remains sustainable. The Central Bank, through adjustments of the repo rate, kept inflation within the monetary policy target range of 3%–6% in 2017. Inflation declined to 5.1% in September 2017 from a peak of 6.8% in December 2016, due to lower food prices. The rand appreciated nearly 20% between January 2016 and July 2017, primarily as a result of higher export prices. The current account deficit improved to an estimated 2.6% in 2017 from 3.3% in 2016, reflecting lower imports. The current account deficit was financed mainly by non–foreign direct investment flows. 

Tailwinds: South Africa struggles with the challenges of a dual economy: high poverty, unemployment, income inequality, and spatial socioeconomic disparities. This struggle is exacerbated by prolonged deindustrialization. Industry accounted for 19% of GDP in 2016, of which 12% is manufacturing, compared with 73% for services. According to the Industrial Policy Action Plan 2017–20, several sectors, including agro-processing clothing, textile, leather, and footwear, show potential for reindustrialization. Some key structural constraints to growth have been addressed. The electricity crisis was reversed in 2016 as additional electricity generation plants came online, adding more than 6,000 MW to the national grid. The government’s top priority in the medium term is infrastructure for transport (which accounts for 34.6% of total infrastructure investment) and water (which accounts for 13% of total infrastructure investment). The prices of major commodity exports increased from 2015 to 2016. 

Headwinds: The perception of corruption in public services remains high. The overall business environment is well developed; it is ranked 82 out of 190 countries in the World Bank’s 2018 Doing Business report, but major challenges remain, notably in energy supply, trading across borders, and red tape. Inadequate quality of basic education remains a critical constraint to generating a skilled labour force. Lack of skills is the main cause of high unemployment, 27% in 2017 and more than 50% among young people ages 15–25. Standard and Poor’s downgraded South Africa’s long-term local currency credit ratings to a sub investment grade in November 2017. It also downgraded the long-term foreign currency sovereign credit rating two steps below a sub investment grade. The agency affirmed the positive outlook for both local and foreign currency credit ratings. This led to a temporary depreciation of the rand against the U.S. dollar by 2%, but the local currency has since regained value. As Moody’s maintains South Africa’s sovereign credit rating at investment grade, South Africa will not be removed from the World Government Bond Index, making higher capital outflows unlikely.

Source: African Economic Outlook 2018

Fixed Income


The government securities yield curve extended to 35 years. 

Issuance strategy 

In the domestic bond market, fixed-rate bonds remain the key funding instrument for government, accounting for 80% of domestic long-term loan financing, with the remaining 20% consisting of ILBs. Fixed-rate bond and inflation-linked bond auctions are conducted on a weekly basis in line with a pre-determined auction calendar (fixed-rate bonds on Tuesdays and inflation-linked bonds on Fridays). In the international bond market, the National Treasury plans to issue USD1 billion equivalent. Timing will depend on conducive market conditions, which will enable favorable pricing. 

Benchmark issues 

By re-issuing existing bonds in the domestic market, the government is able to efficiently reach a benchmark size for SOCs and private-sector companies, as well as meeting market demand. South Africa has a government benchmark yield curve. 

There is only one official benchmark bond, the R186, with a maturity of 10Y. The R207 bond with a 4Y maturity is used at the shorter end, and the R209 bond with a 20Y maturity is used in the ultra-long end. Additionally, the R2048 bond with a 32Y maturity point is becoming a benchmark bond of sorts.

Yield curve 

Yield curve calculation models 

On one hand, South Africa has an implied yield curve:  Nelson-Siegel for inflation-linked bonds and Vasicek for fixed-rate bonds and zero-coupon bonds. This yield curve is for internal purposes. 

On the other hand, there is a market curve in South Africa. 

Interpolation methods 

Where there is no traded yield for a certain point along the yield curve, interpolation is used to generate an appropriate yield. The linear interpolation method is used in the case of South Africa. 

Yield curve managed by 

The National Treasury is in charge of calculating the implied yield curve on a daily basis. This yield curve is not published. However South Africa has a market curve based on secondary market activity (i.e. bid, offer trade price/yield). 

Display platform 

The market yield curve can be accessed from the Reuters and Bloomberg systems. 

Challenges in building an efficient yield curve 

There are no particular challenges for South Africa’s benchmark yield curve. 

Guide to Buying Bonds

Procedures for market participation

Procedures for market participation for residents

Primary issues of treasury bills and fixed-rated bonds are restricted to primary dealers and selected banks. Participation to auctions of inflation-linked bonds is opened to members of the Johannesburg Stock Exchange(JSE).

Retail savings bonds can be purchased online, by telephone, with a broker of the BESA, in person at the National Treasury (NT) (Asset and Liability Management Division) and at any Post office. Rates are advertised as being competitive, with no commission or agency fees. The amount that can be invested ranges between ZAR 1,000 and ZAR 5 million for both fixed-rate and inflation-linked bonds.

Procedures for market participation for non-residents

Bondholders who are not resident in the Common Monetary Area (South Africa, Lesotho, Swaziland and Namibia) will be issued a certificate endorsed as ‘non-resident’.

A non-resident must instruct their nominated Participant or Authorized dealer as to how funds due to them from the Bonds are to be dealt with. These funds can be remitted abroad granted that the relevant Bonds are acquired with foreign currency introduced into South Africa.

Settlement cycle

The settlement cycle for on-market bonds stands at T+3 and that for off-market bonds at T+1, T+2, T+3, with the possibility of trades being rolled for up to three days to a T+6 maximum. Settlement is handled by Strate, the Central and Securities Depository in South Africa.


There is no withholding tax on interest income for both residents and non-residents. However, effective March 1st, 2014, a 15% tax rate will be applicable to interest earned by foreign investors.

Capital gains are taxed at the normal income tax rate on 50% of the gains. However, gains on the sale of substantial foreign shareholdings are exempt if certain conditions are satisfied.

Market restrictions

Openness to international investors 

Foreign participation is authorized in the government securities market. Municipal bonds and RSA retail bonds are restricted to permanent residents and citizens.

Virtually all business sectors in South Africa are open to foreign investors. Government approval is not required to invest, and there are few restrictions on the form or extent of foreign investment. 

Capital controls 

The Exchange controls have been replaced with prudential limits for institutional investors. Non-residents are largely exempt from exchange controls. Restrictions are in place for South African domiciled companies and citizens. Most of the restrictions on outward foreign direct investments have been lifted, except for restrictions on banks where it is set to a maximum of 40% of assets.

With regard to individuals, a maximum of ZAR 4 million may be invested offshore and the annual discretionary amount has been increased to ZAR 750 000. The major limitations are on institutional funds, which can hold up to a maximum of 20% of assets in foreign investments.

Restriction on foreign exchange and profit repatriation

The South African Reserve Bank's (SARB) Exchange Control Department administers the foreign exchange policy. An authorized foreign exchange dealer, normally one of the large commercial banks, must handle international commercial transactions and report every purchase of foreign exchange that is received by South African residents or companies. Generally, there are only limited delays in the conversion and transfer of funds.

Non-residents may purchase local securities without restriction. Non-residents may freely transfer capital into and out of South Africa. These transactions must be reported to the authorities. Foreign investors should ensure that an authorized dealer endorses their share certificates as "non-resident" to facilitate the repatriation of capital and profits. Foreign investors should also maintain an accurate record of all investments.

Credit rating

The three rating agencies, S&P, Moody’s, Fitch gave South African sovereign bonds ratings of BBB, Baa1 and BBB respectively

Rating Agency

Current Rating






November 2014




June 2014

Standard & Poor’    



June 2014

List of primary dealers

The primary dealers authorized by the NT are: 

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