The time has come for President Cyril Ramaphosa to stop his pointless annual investment summits and focus on developing a plan to grow the economy and create jobs.
The absurdity of the gimmick of last week’s summit is that it was held on a day when Eskom in effect implemented stage 8 power blackouts, according to the Sunday Times. The lived experience of South Africans is that infrastructure has collapsed because the government refuses to invest. The economic outlook is worse than the prepandemic trend, when GDP per capita did not grow for a decade.
Five years ago the president set a target to raise investment of R1.2-trillion. In his closing address, Ramaphosa said the summits had raised R1.5-trillion, and the new five-year investment target is R2-trillion.
However, if one cuts through the smoke and mirrors of the official announcements and strips out the effects of inflation, there has been a 13.5% collapse in gross fixed capital formation (GFCF), a measure of total investment, from 2017, just before Ramaphosa became president, to 2022, according to Reserve Bank statistics. The “pledges” refer to investment that would have happened anyway.
A public sector investment strike due to austerity policies and the weak balance sheets of public corporations is the main reason for the decline of GFCF. Investment by the general government declined 18.2% from 2017 to 2022. Investment by public corporations collapsed 41.5%. As a result, total public sector investment, by the general government and public corporations, declined 28.6%. Private sector investment declined 5.9%.
In 2013 the National Development Plan (NDP) set targets of 30% of GDP for GFCF. The shortfall to achieve this target is R1.1-trillion. The NDP also set a target of 10% of GDP for public sector investment. During 2022 public investment was R255.9bn, which was equivalent to 3.9% of GDP. The shortfall to achieve the NDP target is R407.9bn.
In October 2020 Ramaphosa announced an Economic Reconstruction & Recovery Plan (ERRP), based on increased investment in infrastructure. However, the National Treasury and the Bank — the two most important institutions in the economy — ignore the NDP targets and the ERRP. The IMF has found that infrastructure spending has a fiscal multiplier — the additional GDP generated by each rand of new spending — of 2.7 times.
Since infrastructure generates the resources to more than pay for itself, there should be no budget constraint for such spending. According to Keynesian economics 101 investment follows GDP growth. It does not kick-start the economy. The government must stop talking about an infrastructure-led recovery until it ends the public sector investment strike.
The IMF has forecast GDP growth of 0.1% for 2023. SA cannot grow its economy at a faster rate when there is a dangerous cocktail of never-ending Eskom power blackouts, Bank interest rate increases and Treasury austerity policies. The Eskom energy availability factor is the most important short-term macroeconomic policy indicator.
The “inflation nutters” at the Bank must realise that interest rate increases are pointless in an economy where large industrial companies have enormous spare capacity, according to Stats SA surveys, and where Eskom has done the most effective job of decimating aggregate demand. The surveys show South Africans do not have enough money to buy the goods companies can produce.
The Treasury must end its irrational austerity policies and increase public investment, especially in energy and transport. But the illogical conditions for Eskom to get its inadequate R254bn debt relief package is that it should limit investment to a few areas and not borrow a cent. This means Eskom cannot access funds from the $8.5bn climate finance deal. This includes a R9bn World Bank loan to repurpose the Komati power station.
The economy is on the edge of a precipice. With the leaders we have, things will definitely get worse.
• Gqubule is research associate at the Social Policy Initiative.
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