Reasons to be cheerful

South African bankers are eager to point out that subprime lending was never a focus for the country's financial institutions. This is just as well, but South Africa has not escaped the chaos left behind by imploding US home loans.

After Lehman Brothers was overwhelmed by losses and a shortage of liquidity in September 2008, the country's main share index tumbled. Between September 15 and November 20 last year, the FTSE/JSE All Share index slid by 30.53%, to 17,814.42. It had since recovered to reach 20,437.2 at the close of trading on February 5.

Like other parts of the world, the local market has been jilted in a variety of other ways too. Among them is a diminishing appetite for local bond and securitisation issuance (see Profile), while risk aversion by investors offshore has been blamed for decreased liquidity in the South African rand (see Foreign exchange). Meanwhile, political uncertainty looms over elections scheduled for April, and the fate of Jacob Zuma, leader of the African National Congress, who continues to battle corruption charges.

But it is not all bad. Governments in Europe and the US are now scrambling to save failing banks and create fiscal stimulus packages to reinvigorate stricken economies. However, having veered clear of products linked to bad loans, local banks are not in need of state assistance. And South Africa is fortunate enough to have a stimulus package of sorts in place already, in the form of infrastructure projects planned for the 2010 Fifa World Cup. Indeed, the country is abuzz with the sound of construction projects, including roads and stadiums, while Johannesburg's new subway - the Gautrain - has recently completed its first official voyage.

Elsewhere, the important work of empowering the country's black community also continues. Such developments will arguably make the South African economy stronger and better able to withstand external shocks in the future. In short, there are reasons to be cheerful.

Mark Pengelly, Editor, Risk South Africa.