The value of large investment projects in SA’s economy slumped by more than a third in 2022, reflecting the devastating effect blackouts — as well as the deterioration in global growth prospects — have had on business confidence.
SA experienced more than 200 days of rotational power cuts last year and has had blackouts every day so far in 2023. The poor performance of the state transport utility and a plethora of other problems have combined with the energy crisis to dent confidence.
In research published on Monday, Nedbank shows that the value of new projects announced during the year fell to R248.5bn from R392.7bn the year before. The bank’s capital expenditure project listing report shows that while the value of projects announced in 2022 was still higher than pre-Covid levels, the effect of easing commodity prices, slow progress with structural reforms and persistent policy uncertainties continue to hurt investor sentiment.
The fall in fixed investment is bad news for President Cyril Ramaphosa, who has made wooing private sector investors at home and abroad the linchpin of his economic recovery plan. Ramaphosa now has to contend with the loss of trust in the government, as reflected in Stats SA’s latest gross fixed capital formation numbers.
Neal Froneman, CEO of Sibanye-Stillwater, a cash-flush platinum miner on the hunt for investment opportunities as it jockeys for position in the global energy transition, said investors have lost faith.
“There is much more that we can invest in and the rest of SA businesses can invest in if the climate was different, if we had power, if we had clear policies and if it was more environmentally friendly,” Froneman told Bloomberg in an interview. “Business investment in SA is on strike until things improve.”
The report also cited Russia’s war on Ukraine, which continues to manifest through higher commodity prices; a surge in inflation, forcing central banks to aggressively tighten monetary policy; and falling demand from China, one of SA’s largest export destinations as major deterrents for investment.
Nedbank senior economist Johannes Khosa said all these challenges led to extreme volatility in fixed investment activity in the first three quarters of 2022, reflecting the difficult operating environment.
Stats SA shows that even though the country started the year strong, posting growth of 3.4% quarter on quarter, fixed investment slowed to 0.4% and 0.3% in the second and third quarters, respectively.
Worse still, Nedbank said it expects capital spending to slow in 2023, with gross fixed capital formation forecast to grow by only 1.3%, down from an estimated 4.5% in 2022.
“The divisions within government on how to stabilise the electricity supply in the face of destructive vested interests and widespread criminality are unlikely to inspire confidence and could still convince many private companies to either postpone or scrap their expansion plans,” Khosa said.
But it is not all bad news. Nedbank said it expects SA to see some acceleration in fixed investment activity in the renewable energy sector and it expects companies to continue investing in automation and digitisation.
Khosa said that although capital outlays by the public sector will remain patchy, Nedbank’s listing suggests some improvement in infrastructure investment as the government slowly presses ahead with its strategic projects.
Nedbank data shows that even though private firms became more hesitant as load-shedding intensified and tighter financial conditions dimmed domestic and global growth prospects, investment by the private sector grew 7.1% over the first three-quarters of last year.
The data shows that the government announced fewer new projects.
After presenting its strategic integrated projects two years ago, the value of government projects fell to R20bn in 2022 from R33.8bn in 2021.
The report shows that the biggest project recorded is the 524,000m² mixed-use government district worth R8bn in Salvokop, Pretoria. It also shows that most of the medium-sized government projects were dominated by waste and water treatment projects.
Public corporation plans also declined sharply to R34.9bn after the announcement of large projects by Eskom, the SA National Road Agency and Transnet in 2021, which lifted the total public corporation’s projects to R236.9bn.
With Bloomberg
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