The window is open. Now the work begins.
On Friday Moody’s revised South Africa’s credit outlook from stable to positive, holding the
rating at Ba2.[^1] It follows S&P Global’s upgrade to BB in November, the country’s first
sovereign upgrade in close to two decades.[^2] Both agencies pointed to the same cause: a
narrowing deficit, an emerging primary surplus, and reform momentum through Operation
Vulindlela in energy, logistics, and water.[^3]
For a chief executive or chief financial officer, the signal is real and welcome. The cost of
capital for South African risk is drifting down. Borrowing gets cheaper. Foreign allocators are
looking again. This is the most constructive macro backdrop in years, and it is earned
through fiscal restraint and the slow, unglamorous work of structural reform.
It is also only the start. A rating outlook lowers the price of capital. It does not allocate it.
Those are different jobs, and the second one belongs to management.
The window is open. Now the work begins.
Enterprise value rests on a small number of variables: the return a business earns on its
invested capital, the cost of that capital, the rate at which it can grow while the first stays
above the second, and how long it can hold that gap. The foundational relationship is
straightforward:
Value = [NOPAT₁ × (1 − g/ROIC)] / (WACC − g)
A cheaper cost of capital lifts value at the margin by widening the spread between ROIC and
WACC and lowering the denominator. That is genuinely good news. But the same
mechanism cuts both ways. Cheaper funding rewards good allocation and subsidises bad
allocation at a lower interest rate. If a business earns below its cost of capital, a friendlier
macro environment lets it fund value destruction more cheaply. It does not turn that
destruction into value.
So the question the rerating should put on every South African board agenda is not “can we
now raise money more cheaply.” It is “where will we deploy capital, and will that deployment
earn more than it costs.” Capital allocation is the clearest signal of management quality
there is, and the present window is an invitation to demonstrate it.
The clearest version of the argument is the SOE
I have spent years working inside infrastructure-heavy state-owned enterprises across
transport, energy, and water. That is where the link between capital discipline and lived
outcomes is most visible, because the consequences of getting it wrong are not abstract.
Undisciplined capital in these businesses shows up as a port that cannot move volume, a
grid that cannot keep the lights on, a town without reliable water. Citizens carry that bill
directly, through higher prices, lost output, and services that fail at the point of use. Value
destruction in an SOE is value taken from the public.
The encouraging shift is that the logic now runs the other way. Transnet’s rail volumes are
recovering, with around 168 million tonnes estimated for 2025/26 and a target of 180 million
for the year ahead, supported by new private operating companies entering the network.
[^4] The water and sanitation reform stream is largely on track, with an independent
infrastructure agency established to oversee bulk water.[^5] An independent transmission
company has begun operating, and a competitive wholesale electricity market is taking
shape.[^6] The Eskom restructuring remains the hardest piece and is still flagged as facing
significant challenges, and municipal delivery lags well behind the centre.[^7] The picture is
two-speed, and honest reporting should say so. But the direction is set, and disciplined
capital allocation in these enterprises is among the highest-return moves available to the
country, measured in both economic profit and citizen value at the same time.
The same test applies to AI
Run the test on the largest discretionary spend most enterprises are making right now. The
2026 evidence is consistent. McKinsey’s global survey puts the AI return-on-investment
failure rate near 73 percent.[^8] Forrester expects companies to defer about a quarter of
planned AI spend into 2027 as financial scrutiny catches up with the early enthusiasm.[^9]
In one executive survey, three quarters conceded their AI strategy was more presentation
than operating guide.[^10]
The reason is not the technology, which is improving quickly. It is that the spend is
fragmented across functions, weakly governed, and disconnected from any value stream.
Pilots multiply, tools overlap, and no one owns the outcome. The constructive response is
not more caution. It is to treat AI as the capital allocation decision it is: a value hypothesis
before deployment, measurement after, and a named owner accountable for the economics,
with systems designed to improve over successive iterations rather than ship once.[^11]
Handled that way, AI raises decision quality and unit economics. Handled as a technology
programme, it digitises activity and lands as cost.
One problem, three angles
The sovereign rerating, the SOE turnaround, and the AI question are the same problem seen
from three sides. In each, the input is improving: cheaper capital, reforms that are starting
to bite, abundant and capable technology. In each, the value is decided by what comes next,
by whether strategy, capital, and execution stay connected to a single measure of
enterprise value rather than drifting into separate plans owned by separate people.
That connection is the work. It is also where the opportunity sits. The country’s number
moved on Friday. The harder number, the spread between what your capital earns and what
it costs, is still yours to set. The conditions to set it well have not been this good in a long
time.
Mgcinisihlalo Jordan is founder and Managing Principal of Nelani1834, an enterprise value
creation and transformation advisory firm operating across South Africa, pan-Africa, and the
Middle East.
References
[^1]: Moody’s Ratings, outlook revision for South Africa to positive from stable, rating
affirmed at Ba2, 22 May 2026. Reported by Bloomberg, Reuters, and Investing.com.
[^2]: S&P Global, sovereign rating upgrade to BB from BB-, November 2025; South Africa’s
first sovereign rating upgrade in nearly twenty years.
[^3]: Moody’s Ratings statement, 22 May 2026; National Treasury and the Presidency,
Operation Vulindlela.
[^4]: Operation Vulindlela fourth-quarter progress report, 22 April 2026; Engineering News,
“Operation Vulindlela reforms progressing despite challenging global economic
environment.”
[^5]: Operation Vulindlela progress dashboard, water and sanitation reform stream; National
Water Resources Infrastructure Agency Bill.
[^6]: National Transmission Company of South Africa, initial phase of operations from 1 April
2026; submission of the Market Code to Nersa. Financial Mail, “Still mixed results for
Operation Vulindlela,” 21 May 2026.
[^7]: Engineering News, “Operation Vulindlela again lists Eskom’s restructuring as a reform
area facing significant challenges,” February 2026; Daily Maverick, “Reform engine stalls at
street level as municipal failures blunt SA’s progress,” April 2026.
[^8]: McKinsey Global AI Survey 2026, as reported in coverage of enterprise AI ROI, 2026.
[^9]: Forrester, 2026 Technology and Security Predictions, October 2025.
[^10]: Writer, “Enterprise AI adoption in 2026,” 2026 executive survey.
[^11]: On treating AI investment with the same rigour as capital expenditure, see Alvarez &
Marsal commentary in CFO Dive, 2026, and related 2026 enterprise AI governance analysis.