The value of announced capital projects jumped last year, led by government and state-owned enterprises, and this bodes well for a turnaround in SA’s fixed investment spending in coming years, Nedbank’s capital expenditure survey suggests.
But speakers at the survey’s launch said investment spending needed to be doubled or tripled to provide a meaningful boost to economic growth.
Capex projects announced in 2024 jumped to R445.9bn, up from R210bn in 2023, the highest increase since 2021, Nedbank economist Crystal Huntley said.
General government and public corporations accounted for just under 80% of this, with public sector spending rooted in replacement capital rather than expansion. Replacement projects accounted for 61.2% of the public sector listings, reflecting the big challenges with infrastructure backlogs.
Nedbank’s project listings tend to be a lead indicator for the direction of fixed investment in SA, which has collapsed since 2015 and is now below 15% of GDP — down from 23% at peak in 2008, and well below the 30% target set in the National Development Plan.
It is also well below the average 32% for emerging market and developing economies, which is a big reason why SA’s economic growth rate is so far below the emerging market and developing economies’ average.
The collapse in investment spending by state-owned enterprises was a key factor in the decline. The SOEs diminished role in providing essential infrastructure had also deterred the private sector — which accounts for over 70% of SA’s investment spending — from investing to expand operations, Nedbank economist Matimba Khosa said.
However, third-quarter official figures suggested a turnaround in the investment cycle, he said, and a pickup in government and SOE investment spending was positive news.
The Nedbank survey suggests the uptrend will continue. The increase in fixed investment plans reflected a myriad of projects addressing infrastructure backlogs particularly in road and water systems. It showed the government replaced the private sector as the major driver of projects, with a 161% jump in plans to R199.8bn.
Public corporations announced plans worth R150.5bn, up from R35.8bn in the previous year. Private plans declined by 4.3% to R95.6bn.
“Given weak growth, the private sector opted to wait and see how the May general elections would evolve and whether structural reforms would improve underlying operating conditions,” the survey said.
The survey draws on public announcements of new fixed investment projects, which can take several years to be executed, and at least some never materialise.
Big challenge
Nedbank chief economist Nicky Weimar said the bank’s economists tried to be as realistic as possible with the projects they included in the survey, but there was a big challenge with government projects to identify what was true spending.
She cautioned the R445bn of projects was not huge in the context of last year’s total fixed capital investment of R1-trillion. “It needs to be doubled and tripled to lift the economic growth rate meaningfully.”
Acting head of Infrastructure SA Mameetse Masemola said: “We often underestimate the significant negative impact of the multiple authorisations required just to get projects off the ground.”
Some independent power producers had reported they required 96 approvals for each project, which could take six months to three years. Infrastructure SA is providing a one-stop shop to try to unblock the bureaucracy and red tape.
Gauteng provincial government MEC Jacob Mamabolo said the project delivery process was where the challenge is, with huge unspent sums returned to the fiscus.
The Gauteng Infrastructure Delivery Platform aimed to modernise outmoded methods of delivery and provide information and data on which decisions could be made. When he asked departments how many infrastructure projects they had and the total value and status, most did not have the information, Mamabolo said.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.