A striking transformation has occurred in South Africa: Comrades in arms are now comrades in conservative economics, which has served to stabilize an economy long overlooked by the global investment community.

South African President Thabo Mbeki will try to amend that during his current tour of New York, where he will woo politicians, address the United Nations and attempt to develop U.S.-South African relations. At the same time, the country has kicked off a roadshow in Europe for its modest-sized Eurobond offering of 300 million to 500 million euros ($313 million-$522 million) later this month.

The South African government hopes that Mbeki's visit and the new bond issue will put the country back on the investment map by highlighting strides made in recent months, including a smooth transition of power to Mbeki from the internationally beloved Nelson Mandela.

"The country's fundamentals are certainly better than they were after the first elections, yet the currency is weaker and the bond yields are higher," says Bob Kowit, portfolio manager for international fixed income at Federated Investors, which invests in local South African bonds and other securities.

Nor has the Johannesburg stock market fully recovered from the shellacking it took last year, when the world financial crisis lapped up on South African shores and the country's currency -- the rand -- fell under speculative attack. Though the Johannesburg Stock Exchange All Share index has gained 22% this year, it is still more than 18% off the highs it made before the rand crisis.

"South Africa has been very tentative in getting its story out," says Kowit. "But they have shown a remarkable ability to gradually get things done."

Though Mbeki himself is a walking contradiction -- a Moscow-trained guerrilla and a Sussex-educated economist -- his policies for GDP growth, deficit reduction and inflation control are proving effective. Domestically, interest rates' decline in the last three months are spurring real growth, the financial sector is budding and exports continue to increase despite a drop in gold prices.

Moreover, new South African Reserve Bank Governor Tito Mboweni has promised greater transparency and a formalization of interest-rate decision-making with the establishment of the Monetary Policy Committee.

"We are not expecting anything radical from the SARB, and we are pleased with that," says Mark Breedon, portfolio manager for the Southern Africa fund, which has 80% of its holdings in South African debt and equity. Breeden says South Africa's recovery has been driven by investor appetite for cyclicals and metals other than gold.

As evidence, Anglogold ( AU) is up by one-third this year, while American-listed shares in diamond behemoth De Beers ( DBRSY) and miner Anglo American Platinum ( AAUK) have roughly doubled since the beginning of the year.

But not all is rosy for the strongest economy in Africa, with 1998 GDP of about $117 billion, according to World Bank estimates.

While recovery in most of Southeast Asia has brought more interest in the emerging-markets asset class, the threat of an Ecuadorian default is rearing its Medusa-like head, which could prompt some foreign investors to stay away, regardless of improving fundamentals.

Closer to home, endemic crime and unemployment pose real threats to South Africa's financial standing. To his credit, Mbeki has created the "Scorpions," a special police force created to handle priority crimes like police corruption, and he is behind an attempt to better integrate racially an oft-criticized police force. It is hoped that economic stimuli will create jobs for work-starved South Africans, 28% to 40% of whom are unemployed. At the U.N. and in private meetings, Mbeki has promoted his concept of "African Renaissance" and with it, the birth of a stronger, more egalitarian and more market-friendly South African economy.

As Mbeki stated in his inaugural speech, "Being certain that not always were we the children of the abyss, we will do what we have to do to achieve our own renaissance."

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