The government must stop thinking it can continue making the rules for investors and expect them to come, says Adrian Saville, professor of economics, finance and strategy at the University of Pretoria’s Gordon Institute of Business Science.
“It shouldn’t be lost on us that when capital is looking for places to go, including South African capital, there’s 215 destinations available,” he says. “Capital is spoilt for choice, it’s not starved of opportunity. The world is awash with capital.”
Meanwhile, both domestic and foreign investment in South Africa is at dangerously low levels. Saville points out that gross fixed capital formation is at 15% of GDP while the National Development Plan target is twice that by 2030.
“To achieve a growth rate in line with the world average we’d need to achieve and sustain an investment rate of 25% of GDP. To get to our ambition of 5%-plus economic growth, we’d need to be recording an investment rate of 30% of GDP.”
The prime mover for private sector investment spending in South Africa is public sector investment, which has been “missing in action”, increasingly diverted to fund current spending rather than capital spending.
When you’ve got an investment drought that has run now for 15 years, then convincing foreign capital that all is well at home is very hard
“If capital spending in the public sector is missing South Africa’s private sector adopts a wait-and-see approach. They wait for the catalyst of public sector investment spending,” says Saville.
Only when the private sector starts investing will South Africa start getting the foreign capital it “desperately needs”.
“When you’ve got an investment drought that has run now for 15 years, then convincing foreign capital that all is well at home is very hard.”
Doesn’t this contradict President Cyril Ramaphosa’s announcement not long ago that South Africa’s Investment Conference had achieved 95% of its R1.2-trillion target?
“It’s rather tiring to hear yet another round of promises that there’s a trillion rand of investment spending on its way,” Saville says.
“I don’t know how long this number has been trotted out,” but it does not represent reality. “Each time the South African Reserve Bank reports these numbers it’s another missing-in-action figure. The investment simply isn’t there.”
Not only is foreign capital not coming, but South African capital is leaving, he says.
“If South African capital isn’t finding abundant opportunities at home it will go hunting abroad, which it has been doing for a long time.”
South Africa has an abundance of opportunity. It has sophisticated product markets and well developed, well regulated capital markets. But they’re far too overregulated.
“When you start laying down the conditions, saying, ‘You can bring your capital to South Africa but we will tell you the requirements of that capital,’ it becomes a much shorter conversation. Capital says, ‘I’m in a similar conversation in Tanzania, and the restrictions and obligations aren’t as onerous. So I’m going to allocate my capital there.’”
Saville says it shouldn’t be lost on South Africa that Kenya, Ethiopia, Rwanda, Tanzania and Namibia are running with 30%-plus investment rates.
“And guess what? They’re getting elevated growth rates.”
He recently visited Vietnam, which has been “romping along” with 6% economic growth for a decade and more. He points out that its economic revival began when it was teetering on collapse in the mid-1980s.
Is South Africa at the same point of impending collapse?
“We’ve certainly got the ingredients for collapse if you take inequality, unemployment and youth. South Africa’s average age is younger than 25, youth unemployment is more than 60% and our Gini coefficient ranks as the most unequal in the world.”
A simple back-of-envelope calculation will answer the question how long this can go on for, he says.
South Africa’s population growth of 1.5% means that in 50 years the population will have doubled. And at its current growth rate of less than 1% South Africa’s economy will have increased by half. “So our per capita income will be even lower in 50 years than it is today. That’s not the stuff of miracles, certainly not of a Vietnam.”
In South Africa’s case it can’t just be growth, he says. It has to be inclusive and transformative growth. “For that, you cannot consume your way to prosperity. You have to invest.”
Debating whether growth causes transformation or transformation causes growth is a waste of time. “The two happen together, they coincide. The first mover, perhaps necessarily, is growth. But as growth starts to come out the blocks it immediately has to be evidenced in the form of impacts and inclusion.”
As for BEE, the facts speak for themselves. “The Gini coefficient is the same now as in 1990. Youth unemployment is higher and unemployment measured more broadly is higher. So our laws haven’t been effective in achieving the transformation we require.”
South Africa has to decide if it needs to change tack.
But he says he has been pleasantly surprised by the government of national unity. “Instead of commenting on deliverables I would rather underline the maturity and stature of the GNU. That the centre has held speaks volumes about our political maturity.”
But more cohesive and effective policy is needed. For policy to be effective it is critical to get the county’s institutions back on their feet, he says.
“The one that has been most fundamentally missing in action is Transnet. The restoration of Transnet is a critical component of South African policy being able to get from words to action.”
Saville, who has researched Transnet and Eskom for the Centre of African Management and Markets at Gibs, says many people do not fully appreciate “just how integral these two SOEs are to economic performance”.
“To some extent we’ve been able to work around Eskom, because you’re able to build more modular solutions, as we’ve seen under the renewable energy independent power producer procurement programme, which I think has been a resounding success.”
Transnet is much harder, “so that’s where the imperative lies. Fixing our transport infrastructure including ports and freight rail as quickly as possible is absolutely fundamental.”
Equally fundamental is understanding that “for South Africa to get into elevated and inclusive growth public-private collaboration and partnership is essential. It cannot be done as a sole venture, it is necessarily a joint venture.”
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