Please see below the daily update article from EPIC Investment Partners, received this morning – 05/06/2026
South Africa’s rehabilitation in the sovereign bond market is usually told as a fiscal story. S&P delivered the country’s first upgrade in almost two decades in November 2025. Moody’s has since shifted its outlook to positive. Consecutive primary surpluses, a likely peak in government debt and the improvement at Eskom have given the rating agencies reason to reconsider.
The more interesting change sits outside the government accounts. South Africa may still have the public finances of a sub-investment-grade sovereign, but it has quietly acquired a much stronger external balance sheet.
In 2007, its net international investment position was minus 28.3% of GDP. By 2015 it had moved into positive territory. Net foreign assets reached 26.9% of GDP in 2024, an improvement of more than 55 percentage points in 17 years.
This is the Pretoria paradox. Gross government debt reached almost 79% of GDP in 2025/26, growth has been anaemic and debt-service costs consume an uncomfortable share of revenue. Yet South African residents collectively own substantially more foreign assets than foreigners own South African assets.
Most belong to pension funds, insurers, companies and households rather than the Treasury. The position has also benefited from valuation effects, since a weaker rand lifts the domestic value of overseas portfolios. Even so, a country with a large pool of foreign assets is less vulnerable than one in which the government, banks and private sector all depend on external financing.
The operational improvement at Eskom strengthens the case. The wholly state-owned utility remains South Africa’s dominant electricity supplier, operating most of its generation fleet and the national transmission system. Years of poor maintenance, plant breakdowns and delayed new capacity left it unable to meet demand, forcing scheduled blackouts known as load-shedding.
Those outages constrained mining and manufacturing, deterred investment and increased reliance on imported diesel. More reliable power removes an artificial ceiling on production and an avoidable drain on foreign currency. Freight and port reform could do the same for exports, much of which remains held back by unreliable railways and congested terminals.
It could also begin to unlock the labour market. Official unemployment stood at 32.7% in the first quarter of 2026, while fixed investment has fallen to roughly 14% of GDP. Both are severe weaknesses, but they also reveal the scale of unused capacity.
From such a low base, foreign direct investment in power, mining, manufacturing and transport could lift growth materially. More jobs would raise household income and consumption, while higher profits and wages would broaden the tax base.
South Africa’s positive external position gives it room to pursue such an investment cycle without immediately recreating the balance-of-payments pressures that have derailed many emerging-market recoveries.
The bond market still charges heavily for the country’s history. Borrowing needs are large, political risk remains and yields must absorb substantial supply. But large, liquid bonds can stay cheap even as the credit direction improves.
A return to investment grade is not guaranteed. S&P and Moody’s remain two notches away and will want proof that debt has peaked rather than paused. But another upgrade within a year, followed by a second as fiscal and growth gains become established, could return at least one major rating to investment grade within 12 to 24 months.
The public balance sheet remains strained. The national balance sheet no longer does. If fixed investment follows the improvement in electricity and public finances, growth, bond yields and sovereign ratings could move faster than the market expects.
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Cherise Lancaster
05/06/2026