I write this not in anger, but in sorrow. And with the weight of 30 years spent in markets that made South Africa exceptional.
I have spent that time at some of the largest investment banks in the world – Merrill Lynch, Credit Suisse and Macquarie – and across those years I have seen capital markets function at their best and at their worst. I know what a healthy market looks like. I know what a dying one looks like.
- I was there for the technology boom of the 1990s, when the JSE briefly became a destination for global capital and South African tech businesses dared to imagine themselves as world class.
- I watched the rise of the South African property sector through the 2000s, as listed vehicles unlocked a new asset class and brought a generation of investors into the market.
- I was present for the commodity super-cycle driven by Chinese industrialisation – the years when South Africa’s resource endowment seemed capable of financing an entire national future.
I have believed, through every cycle of this country’s turbulent history, that South Africa’s financial architecture was one of its great unsung strengths.
So, I must now ask, plainly and on the record: what have we done to it?
We have made a series of decisions – without adequate analysis, without consequence modelling, without sufficient regard for what was being dismantled. And we are living with the result: a domestic capital market in the advanced stages of dissolution.
The JSE in name only
Let us start with something that deserves to be said plainly. The JSE Top 40 – the index most South Africans associate with investing at home – is, in large part, not a South African index. More than 80% of the revenues generated by the companies within it originate outside this country.
Naspers, Glencore, Richemont, British American Tobacco, Anglo American – these are global enterprises that happen to be domiciled or listed in Johannesburg. Their growth, their capital allocation, their fortunes are determined in London, Geneva, Shanghai and New York.
That is not a criticism of those companies. It is an observation about what our primary index actually measures. And it is not the health of the South African economy.
When our retirement funds, our unit trusts, our institutional investors put capital into the JSE Top 40, they are in large measure gaining offshore economic exposure through a local wrapper. The domestic capital market has become a mechanism for exporting capital rather than deploying it at home, a post office box.
There is the delisting crisis – a slow haemorrhaging that has received far less attention than it deserves. There were over 800 JSE-listed companies in the 1990s. Now only circa 280 JSE-listed companies today.
More than half the companies that once made up South Africa’s public market have gone. Some were acquired. Some failed. But a significant and growing number delisted because the JSE could no longer offer them what a capital market is supposed to provide: fair valuations, adequate liquidity and meaningful access to growth capital.
When valuations are compressed and institutional demand is thin, the cost of being listed – compliance, disclosure, shareholder management – becomes impossible to justify. So companies leave. And when they leave, they take with them the transparency of public reporting, the accountability that listed status demands and the investment opportunity that ordinary South Africans in retirement funds would otherwise have accessed.
The companies considering listing next look at this landscape and draw the obvious conclusion. They list in London. They list in Amsterdam. They list in New York. And South Africa’s next generation of great businesses is built somewhere else, for someone else’s benefit.
What broke?
In February 2022, the offshore allocation limit for South African retirement funds under Regulation 28 of the Pension Funds Act was raised from 30% to 45%. At the time, domestic retirement funds held R1.6-trillion in offshore assets – already at the 30% ceiling. The new limit created both the mandate and the incentive to move an additional R800-billion out of South Africa.
The consequences were not hard to anticipate, and they arrived: reduced demand for JSE equities, a weaker rand, diminished appetite for South African government bonds and a further erosion of South Africa’s weighting in the MSCI Emerging Markets Index – already below 3%.
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Foreign investors, watching this, drew their own conclusions. Over the past decade they have withdrawn over US$2.5-billion from South African bonds and equities – $1.25-billion in bonds, US$1.4-billion in equities.
The question that must be confronted directly is this: if South Africans are not investing in South Africa, why would the world?
Finance minister Enoch Godongwana has since acknowledged publicly that national treasury made a serious mistake. That acknowledgement matters. But acknowledgement without reversal is not a policy – it changes nothing. A further structural problem compounds the damage. Inward listings – foreign-domiciled companies listed on the JSE – are currently excluded from the offshore allocation count. This means a retirement fund manager can maintain effectively full offshore economic exposure while remaining technically compliant with domestic regulations. The rules exist. Their purpose has been circumvented.
The compact we have broken
The tax incentives embedded in South Africa’s retirement savings framework – contribution deductions, tax-free compounding, exemptions on fund income – were not granted arbitrarily. They reflect a social compact: the state forgoes revenue today in exchange for capital that remains productively deployed within the economy that granted the benefit.
When 45% of that capital is permitted to leave South Africa permanently, the second half of the compact is voided. The taxpayer subsidy flows offshore. The infrastructure deficit deepens. The companies that might have been funded go elsewhere. And the retirement saver – living with a weakening currency, deteriorating public services and a country starved of productive investment – pays the price without ever being told why.
What must be done
The window to act is narrowing. These are not irreversible trends, but they are becoming so. The offshore allocation must be returned to 30%. Inward listings must be counted within that allocation rather than permitted to circumvent it. New flows should be subject to revised limits immediately. Existing portfolios should be given 18 months to comply – a timeline that is entirely achievable.
As a corresponding measure, the prescribed assets debate should be suspended: by expanding the domestic capital pool through this reversal, we achieve the objective of directing investment towards South Africa without the coercive mechanisms that undermine fund manager discretion and accountability.
None of this is radical. It is a restoration of what worked.
I do not write this as someone who has given up on South Africa. I write it as someone who has watched this market through three of its most consequential chapters – the tech boom, the property rise and the commodities super-cycle – and who has sat on both sides of the transaction, in Johannesburg and in the global banking centres that decide where capital flows.
The JSE was, during those years, a genuine source of national pride. It functioned. It financed. It gave ordinary South Africans a stake in the country’s growth. It can do so again. But not if we continue to look away from what is happening to it. This is my attempt to ensure that we do not.