Two weeks ago, President Cyril Ramaphosa strode to the podium to close the fifth investment conference in Sandton, delivering a story of outlandish success.
In practice, this amounts to an annual capital flow of just under R100bn a year — just 1.5% of GDP, says Absa economist Peter Worthington. This, in a country where the fixed investment ratio has declined dramatically over the past 15 years — from a respectable 22% of GDP in 2008 to just 14% now, he adds.
In Absa’s sample of advanced and emerging economies, only Egypt’s fixed investment ratio is lower; South Africa is falling behind even the chronically underinvesting Brazil . As a rule of thumb, economists have found that countries need to achieve a ratio of at least 25% to sustain rapid economic growth.
“The good news of the investment conference should not be discounted completely, but it needs to be considered in the context of South Africa’s ongoing severe energy shortages and logistical constraints and weak business confidence and capex,” says Worthington.Business Leadership South Africa CEO Busi Mavuso makes a similar point.
Nedbank compiles an annual list of large, expansionary, fixed investment projects announced each year by the private and public sectors. Projects are not included unless they exceed R20m, feasibility studies have been done, and they have a start date and a budget. Nedbank’s latest tally shows that the value of new projects announced during the year fell to R248.5bn, from R392.7bn in 2021, and R425.4bn in 2020.
According to the BER, manufacturers are on balance negative about the prospects for increasing their future capital spending, both in terms of maintenance investment that just replaces depreciated capital stock, as well as expansionary investment. Nedbank’s Weimar believes the reason fixed investment is lacking is South Africa’s growth prospects are weak, and the risks of investing exceed the expected returns.
By contrast, since 2018, private firms have contributed the lion’s share of all capital spending in South Africa, averaging 71%. State-owned companies are responsible for another 11%, with government making up the other 18%. Though Nedbank expects capital outlays by the public sector to remain patchy, some improvement is likely, as the government presses ahead with various projects.
A big part of the problem, according to a recent National Planning Commission review, is that there is a critical shortage of professionals with built-environment skills and experience across all spheres of government. In all, the pipeline of committed energy projects now represents more than 10,000MW of new capacity. If this can reduce the need for load-shedding within the next few years it should stimulate business confidence which should, in turn, beget the kind of real expansionary investment that creates growth and jobs.