The banner headlines read “Euro in turmoil”. The future of the currency is finely balanced in the hands of Greece. If the Greeks opt out of the euro and exchange it for their former currency, the drachma, the contagion that will spread in the European financial system may send the markets to the wall.

But then the solution to the euro’s survival may also be helped by emerging countries which may be tempted to invest in the currency. The so-called BRIC countries (Brazil, Russia, India and China) meeting in Cannes at the G20 can be persuaded to throw a lifeline to the sinking euro and there is more untapped potential in countries on the African continent. These face the problem of capital flight which has indirectly resulted in them being rich providers of FDI foreign direct investment (FDI) to Europe.

The fact is that, from 1970 to 2008 there was an unregistered financial out-flowing from Africa of vast amounts of US dollars. South Africa is the biggest economy in the whole of Africa and from 1970 to 2004 there was a capital flight from that country of a cool $18 billion. This figure grew to $57 billion during the three years to 2008. First of all, there have been a number of companies that moved their primary listing from the Johannesburg Stock Exchange. To mention a few, Investec Bank, Didada IT, BHP Billiton, Mondi Paper, SABMiller Beer, Old Mutual and Liberty Life Insurance have all migrated to other stock exchanges. Basically, this means that the South African economy is directly deprived of substantial profits, dividends and interest payments which is negatively influencing the current account deficit and accelerating the overall level of foreign debt. Economists agree that it is a particular reason why the South African economy is suffering stagnation.

In 2009, the year when the number of companies that left the country was particularly high, real GDP declined to -1.7 per cent. Although it improved in 2010 to 2.8 per cent, and is expected to increase to 3.6 per cent this year, you could say that the economy is in stagnation mode, especially compared to other developing BRIC countries. The official unemployment rate in South Africa was 25 per cent in 2010 and, ironically, this is a vicious circle. It is obvious that, as more capital leaves the country, there is not enough for new entrepreneurs – which leads to economic stagnation and reduced employment opportunities. As a result of a bad economic outlook, the country will be look less interesting for investors. And in addition to this, there is also a flight of human capital.

One may well ask what is causing this phenomenon. Why are professionals leaving and why is so much capital flowing out when South Africa is so resource rich? There is no simple explanation for the situation. In a democracy such as South Africa, there is no way that the government can object to companies being listed on the stock exchanges of other countries. Naturally, the cause of this multiple migration can be analysed and basically the conclusion is that it is mainly the high rate of corruption that has percolated government circles. Regrettably, corruption is still a huge problem in South Africa and although the Zuma presidency is doing its best to eradicate it, a diligent observer can find it in every sector of society, even at the level of high officials in the administration. Another possible reason for the poor economic performance is the never-ending problem of racism. Although South Africa successfully eradicated the apartheid system many years ago, sociologists admit that it still has a lingering influence on society. Even after so many years of BEP (black empowerment policy) there are still visible disadvantages for blacks, especially in the agricultural sector. However, there is a movement within the African National Congress (ANC) that is fighting for more rights and better employment prospects. This political party, later led by the charismatic Nelson Mandela, was founded 1912 with the aim of improving the rights of the blacks. Nowadays, the ANC youth section sees itself as a militant force of the left and from their various declarations one can detect hints of acute nationalisation. Julius Malema, the leader of ANC’s youth league, is the de facto leader of this movement and much attention is paid to him and his fiery speeches. For example, he touched on the delicate issue of the need for the nationalisation of mines, ownership of which, in his opinion, is concentrated in the rich clan of white owners. His political enemies are saying that this issue has helped foment more uncertainty among investors – and it is especially important, considering that mining is South Africa’s most lucrative industry.

Back to Europe, there is a serious risk that, due to the problems in Europe and especially situation regarding Greece’s debts, South African banks could decide to repatriate their euro investments and redirect them to emerging economies. Paradoxically, this would add to the uncertainty and trigger more capital flight from South Africa.

So what should investors do? Should they relocate their investments and bond holdings in South Africa and alternatives are there?

There are no clear-cut answers to these questions. Of course, the problems identified above could be a reason to say “let’s cut our losses and go somewhere else”. But actually, South Africa is still attractive and has a lot of advantages for investors. As well as a moderate tax rate, a national debt level that is only a third of GDP and a relatively good performance of bonds, it is the gateway to the whole of African business opportunities, particularly in its huge mineral wealth and vast untapped natural beauty for tourist ventures. The continent is considered by many to be one of the emerging food and mineral baskets of the new millennium.

However, should investors decide that South Africa is too tough to handle, then there are several interesting possibilities for them. Of course, there are the already mentioned emerging markets of China, India and Brazil but Malta could also be a good alternative. There are valid reasons for listing funds or bonds in Malta, the most important one being the fact that funds that are domiciled here enjoy the open passport attractiveness granted in the EU. For example, talking of retail funds such as listing a UCITS fund in Malta makes it easy to promote it in the whole EU. Malta’s political and financial stability, together with very dynamic regulations, makes the country very attractive for South African investors. In addition, Malta provides a team of experienced service providers and the Malta Financial Services Authority (MFSA) as the single financial regulator.

Since last spring, Malta has had a new tax rule that attracts highly qualified people who are domiciled abroad but working in a local fund or insurance company that is licensed and recognised by the MFSA to pay only a 15 per cent flat rate of income tax on earnings. This is a huge saving when you compare it with the 35 per cent they would have to pay as the standard top rate. But although Malta enjoys such advantages, in my opinion this is not sufficiently marketed abroad. Efforts by FinanceMalta are encouraging, but considering that the eurozone is passing through such turbulent times, there must be more funds available to market the island for listed funds. The euro crisis is not over yet, and the outlook is grim. Nobody can say for sure if the collective remedy suggested by Germany and France to help solve the high debt crisis of a number of EU members will prove to be successful. Starting with the huge debt mountains of Greece, Italy, Ireland and Portugal, the euro is facing monumental problems. Its members are trying to boost morale by structuring a European rescue fund (EFSF) with leverage from IMF funding. But banks are still expected to suffer a 50 per cent “haircut” on massive Greek loans, which means that some will face bankruptcy unless they in turn are bailed out by their governments.

So we can conclude that the interlocking structure of world economies means that the euro crisis is also threatening the emerging potentially rich African continent, which itself is suffering from an acute dearth of new capital investment. Will Malta be a net recipient of this capital that is frantically searching for a safe haven? We can only hope that investment promotion in Malta is accelerated to catch the highest number of investors who may wish to take advantage of our investment package, including high net worth individuals signing up for the new permanent residence schemes which, combined with a safe investment location, allows a high standard of living with competitive tax advantages.

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The writer is a

partner in PKF, an audit

and business advisory firm