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.
The government securities yield curve extended to 35 years.
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.
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 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.
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).
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.
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.
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.
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.
Standard & Poor’
List of primary dealers
The primary dealers authorized by the NT are:
Documents & Resources
Documents - Ministry of Finance
- Banks Act of 1990 ( Banks Amendment Act of 2007) (323 kB)
- Banks Amendment Act of 2007 (1.19 MB)
- Expropriation Amendment Act of 1992 (1.32 MB)
- Financial Markets Control Act -Bond Exchange of South Africa (1989) (97 kB)
- Securities Services Act of 2004 (0.97 MB)
- Securities Transfer Tax Act of 2007 (295 kB)
Documents - Central Bank
- SARB-AR_2013-14.pdf (14.69 MB)
- SARB-Fin_Stab_Report-Sep_2014.pdf (10.82 MB)
- Sth_Af_Bkg_Sector_trends-Mar_2015.pdf (82 kB)
- Sth_Af_Bkg_Supervision-AR_2014.pdf (9.51 MB)
Documents - Stock Exchange
- JSE-AR_2014.pdf (1.02 MB)
- JSE_Draft_Derivative_Rules-Amend.pdf (575 kB)
- JSE_launches_int_rates_futures..2015.Aug.31.pdf (117 kB)