More Foreign Investment and Capital Heading SA’s Way

The consumer story in SA is a very bullish one. South Africans have an extremely high time preference, which means they strongly desire consumption over saving and investment. Furthermore, the average SA household is in much less debt than Western counterparts. For example, US household debt to GDP is 90%, while SA household debt to GDP is less than 50%.

Because South Africans don’t save and invest enough to produce the goods that South Africans consume (resulting in a current account and trade deficit), foreigners make up the saving and investment shortfall. This is reflected in foreign capital inflows to the country, which includes the opening up of international retail shops, such as Zara recently in Sandton city, as well as the investment by Walmart to acquire Massmart.

If SA did not receive the voluntary savings being provided by foreign investors, the standard of living of the average South African would collapse and we would need to produce more of what we consume. Price inflation would initially explode if foreign investment were to be halted, and interest rates would climb dramatically too.

In the meanwhile, however, our lifestyle is being funded by foreigners and it is about to become even more funded. UK retailer Topshop and Topman have grantedĀ Edcon and House of Busby the South African franchise rights for the multinational retail chain, reports Business Day.

The first flagship Topshop store is set to open in Sandton City in November.