The government is calling on the private sector to contribute at least a third of the capital required for the country's major infrastructure projects, but it remains to be seen what the appetite for this will be - it will depend on how bankable the state infrastructure projects are for SA's financial services industry.
At the Sustainable Infrastructure Development Symposium SA on Thursday, President Cyril Ramaphosa said: "The focus is on capital investment in the large network sectors of energy, water, transport and the digital economy. At least a third of the capital required for this infrastructure should come from the private sector."
Annabel Bishop, chief economist at Investec, said: "The private financial services sector generally stands ready to fund bankable state infrastructure projects, as occurs in other countries around the world, and indeed the lack of a pipeline of these is the issue."
Ramaphosa said infrastructure development on a "massive and innovative scale" is critical for the economic development of SA and "inclusive growth and shared prosperity really finally depends on it" .
The government "recognised that the current policy and legal framework for public infrastructure is fragmented and not really workable, with many overlapping institutional roles and accountability".
The president said that over the next 12 months, Infrastructure SA - the body overseeing SA's infrastructure investment rollout - will propose amendments to the Infrastructure Development Act to clarify roles and responsibilities amongorgans of state.
Corporates are only likely to invest if the domestic regulatory environment is right
— Annabel Bishop, Chief economist at Investec
Meanwhile, data from the Reserve Bank shows how the non-financial sector is also cautious when it comes to their own investments and expansions.
Speaking at a webinar this week hosted by the think-tank Centre for Development and Enterprise, Reserve Bank governor Lesetja Kganyago said companies are sitting on a lot of cash and as long as there is policy uncertainty, they would hold back from investing. The Bank's July data shows that the private non-financial corporate sector is sitting on cash of just over R1-trillion.
But there are indications of growing confidence in the country's short- to medium-term economic prospects.
A KPMG report this week showed CEO confidence was back at pre-pandemic levels with a pent-up desire to expand. The 2021 CEO Outlook-SA survey, conducted in partnership with Business Leadership SA and canvassing 50 CEOs across 10 industries, shows that 70% of "leaders are confident about the local economy's growth prospects over the next three years".
It said 62% of senior executives identified "inorganic methods" such as joint ventures, merger & acquisition activity and strategic alliances as "their organisation's main strategy to support their growth".
And 88% of the CEOs expected "aggressive growth" and were looking to do acquisitions in the next three years.
Economists and business say while there is cause for optimism about SA's growth prospects, companies may still be reluctant to invest as questions remain about a longer-term recovery, continuing government policy uncertainty, slow structural reform and the urgent need for the major rollout of projects to improve infrastructure.
Bishop said the effect of the "extremely harsh" lockdown restrictions last year were still being felt with "substantial damage caused to household finances and employment, and spending ability".
Bishop said corporate expansion plans are based on the outlook for demand for goods and services over 12-14 months, and sometimes three years or longer, depending on the nature of the goods in question.
"Corporates are only likely to invest to create more goods and services if they think there will be significant demand domestically and/or internationally, and if the domestic regulatory environment is right."
She said the present regulatory environment is restrictive, while red tape needs to be reduced and the ease of doing business improved substantially.
Unemployment is high, she noted, and economic growth is expected to slow to 2% next year before gradually picking up.
Bishop said corporates are expected to see mild expansion and investment, but not double-digit fixed investment growth rates this year or next.
Increased investment does not necessarily mean more jobs, which are needed to make a dent in the 34.4% jobless rate.
The Reserve Bank's latest "Monetary Policy Review", released this week, indicates the recovery from the pandemic has resulted in only a partial recovery in employment. with about 793,000 of the 2-million jobs lost during the depths of the Covid crisis in the second quarter of last year recovered by the second quarter of 2021.
The Bank said rising average wages can be explained by companies' reliance on overtime work, rather than new hires, to meet growth in demand.
Cas Coovadia, CEO of Business Unity SA, said the reason that investment into "job-creating growth and into businesses is not at the optimal level" is that the government is not "pulling the necessary levers to create that environment".
He said SA should be "testing every new policy or legislation" to ensure it promotes investment.
Azar Jammine, chief economist and director at Econometrix, said there is "considerable reason to be optimistic" about SA's short- to medium-term growth prospects, but added: "Policy uncertainty is a big constraint, no question about it."
Jammine said there is "enormous pent-up" desire to invest by companies but a number of hurdles had to be cleared first, such as uncertainty around expropriation of land without compensation.
Iraj Abedian, chief economist at Pan African Investment & Research, said companies with solid balance sheets "can't wait for the opportunity" to access cheap finance for investments, but this is conditional on SA's structural issues being resolved.
He said there are positives such as the government allowing private companies to generate up to 100MW of electricity without a licence, but the country "quite frankly hasn't dealt with the medium- to long-term energy supply issues".
"Bear in mind that fixed investment isn't a six-month or two-year investment return horizon, it is roughly a seven- to 12-year horizon."
This means investors require medium- to long-term certainty on some key policy issues, Abedian said.
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