SA may be seeing a steady economic recovery after the worst ravages of Covid-19, but investment, a crucial ingredient in the battle to create jobs, is lagging far behind.
Not even a substantial GDP rebasing, which revealed that the economy was 11% larger that previously thought, has managed to put a shine on SA’s investment levels.
Instead, in its most recent real economy bulletin, think-tank Trade & Industrial Policy Strategies (Tips) noted that, after Stats SA rebased SA’s GDP data, fixed investment was found to have been about 2% lower than previously estimated.
Attracting investment has been the priority of President Cyril Ramaphosa’s administration, which has targeted more than R1-trillion over five years. The damage done by the Covid-19 pandemic has added new urgency to these efforts after SA’s unemployment levels shot to the worst yet, hitting 34.4% during the second quarter of 2021.
Though economic growth rose a seasonally adjusted 1.2% in the second quarter, and 19.3% from the same period a year ago, it excludes the looting and unrest in KwaZulu-Natal and parts of Gauteng, and is likely to have “halted the recovery at least temporarily”, said Tips.
Against this backdrop, Tips noted that in the second quarter investment dropped to 12.8% of GDP, far below the “general rule of thumb” of 20%-25% of GDP that is required to maintain stable growth.
The decline before the pandemic was mostly due to falling public-sector investment, according to Tips. In the second quarter of 2020, the pandemic brought a sharp fall in private investment, it said, and “despite a steep rebound in the second half of 2020, it remains 9% below its prepandemic levels”.
Address unemployment
Despite prioritising investment, partly through an annual investment conference held since 2018, Ramaphosa told parliament in March that from the 2019 conference, which took place before the catastrophic effects of Covid-19, less than 20% of the R364.4bn pledged had actually flowed into the economy.
Most economists agree that for SA to make headway in addressing unemployment, fixed investment has to expand.
Stanlib chief economist Kevin Lings said on Friday that with private and public investment below 15% of GDP, the lowest level on record, “it is impossible for us to be economically successful”.
Lings estimates that for SA to make a dent in unemployment it has to create at least 600,000 new jobs annually and get annual growth to a minimum of about 5%.
According to Lings, this target rate of economic growth and job creation requires that SA’s fixed investment spending reaches about 30% of GDP — annual spending thus needs to increase by at least R750bn.
“You need the government to do some critical infrastructure investment; but the private sector must shoulder the bulk of the investment and job-creation responsibilities,” Lings said.
Strong relationship
Business confidence is critical to boosting investment levels, he said.
“There is a very strong relationship between private sector investment and business confidence; this is the most critical relationship for our economic success,” said Lings, adding that any economic policy that hurts business confidence must be abandoned.
The most recent gauge of business confidence for the third quarter of 2021 showed that a series of “confidence-sapping events”, such as harder lockdown restrictions, the unrest and transport disruptions after a cyberattack on operating systems of SA’s ports, pushed confidence levels back onto negative terrain.
The state has made positive moves on long-standing policy promises such as the corporatisation of logistics parastatal Transnet’s National Ports Authority. It has also lifted the licence limit for embedded electricity generation from 1MW to 100MW. Both steps are expected to help boost competition and efficiencies in the ports and electricity arenas.
Private-sector participation in new energy projects and proposed improvements to port infrastructure could have “game-changing potential” for SA, said Lings.
“The government has recognised the need to partner with the private sector to drive infrastructure investment. Now it is just a matter of acting on this, and implementing accordingly,” he said.
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