It felt like a throwback to a bygone, pre-pandemic era. There were 1,000 people in the Sandton Convention Centre and hundreds of police outside to guard and guide the dignitaries. There were masks, but also hugs and high heels — and plenty of glitz and networking.
President Cyril Ramaphosa’s fourth investment conference felt like a return to old times. And to listen to his opening address one might have imagined that though the pandemic had scarred the world and SA, nothing much else new was happening. No mention in his opening address of Russia’s invasion of Ukraine and the threat of a world war (hardly surprising given the president’s resolute fence-sitting on the matter). Nor any reference to the wild swings in global commodity prices or that emerging markets could no longer rely on the friendly global financial conditions of the past decade.
All of those, one would have thought, might affect companies’ investment decisions, for better or worse. Yet the president’s parochial opening speech simply repeated old refrains and trumpeted the success of his previous three investment conferences. At least this time he could claim progress on some of the government’s long-promised reforms, without having to dwell too much on SA’s continued “challenges”, as he delicately called them.
But it was more than an hour into the conference before someone was bold enough to mention that SA’s investment record was really rubbish, conferences or none. Chairing the first of many panel discussions, Absa strategist (and fellow Business Day columnist) Mamokete Lijane pointed out that as a ratio of GDP, SA’s fixed investment spending had fallen to just 13% — way lower than emerging market peers such as China, at 48%, or even laggard Brazil at 16%. In the upbeat spirit of the gathering, she managed to turn this into a plus though: “We’ve got quite a lot to do, but it means we have a lot of runway to exploit,” she said.
That SA continues to have a generally patriotic business sector, particularly a big business sector, willing to continue coming along to Ramaphosa’s showpieces and trying to partner with a recalcitrant government, is one of its biggest sources of resilience. But when it comes to investment, the numbers tell a more sobering story. And the hype around all the pledges merits careful interrogation.
The previous three conferences saw R774bn pledged, of which about 40% has been spent; this one added another R332bn, raising the total to R1.14-trillion — 95% of the original target. One big question is how many of those announcements were new, and the answer is not many. Most companies come along to the conference and simply pledge investments they had already budgeted for and in most cases already announced.
That’s just as well, in a way. One would hope they’re not committing billions just because they had tea with trade, industry & competition minister Ebrahim Patel. But it does mean most of the investments are already in the bag, as it were, rather than being the new boost all the positivity at the conference appears to promise. And that’s not even raising the question of whether the environment will permit some of these investments to go ahead — there are still legions of bureaucratic hurdles to clear before executing on some of those pledges in areas such as renewable energy.
Even if they are executed, it is questionable how many of these investments are genuine additions to SA’s productive capacity that will boost economic growth. And while one doesn’t want to be rude about the pharmaceutical company that pledged to rebuild its plant in KwaZulu-Natal that was damaged in 2021’s unrest, no economist would call that new capacity.
A third one to watch for in the pledge pack is how much of the total is investment financing, not investment projects as such. The African Development Bank committing R42.5bn to SA is nice, but it’s a borrowing facility, not a project, and the same goes for the other pledges of development finance agency money, local and international (particularly for renewable energy), that made up a fair chunk of the total.
More sobering is to put the target itself in the context of the investment SA routinely does anyway each year. Ramaphosa’s original target, which he set himself in 2018, was $100m over five years. That translated at the time to R1.2-trillion, which is the number that’s still used, though (not to quibble) at current exchange rates would be close to R1.5-trillion over five years. That sounds enormous, but keep in mind that SA records well over R800bn of fixed investment spending in a typical year, about two-thirds of which comes from the private sector. Adding R240bn to each year of investment that would not otherwise have happened would make a big difference. But while Ramaphosa’s investment drive may have helped to cement decisions, most of the investment would have happened anyway.
The real problem is that even Ramaphosa’s apparently stretch target is not nearly high enough to move the dial on economic growth. That would require an investment to GDP ratio of at least 25% — the National Development Plan’s ambition is 30%. SA is a R6-trillion economy, according to the latest GDP data, so if the investment ratio is now a woeful 13%, we would need to be spending at least R660bn more a year to lift the growth rate to the sort of level SA needs. The president needs to work a lot harder to make SA attractive for new investment — and to make sure his government goes out of its way to welcome it when it is offered.
• Joffe is editor at large.
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