Business

Private sector carries the economy, despite state's big plans

Lynley Donnelly

But economists say the broader economic outlook is poor, dampening the private sector’s commitment to large investment spending.

The outlook for the local economy remained weak, according to Nedbank. (Oupa Nkosi, M&G)

The private sector is the major driver of capital expenditure projects, despite government’s ambitions to become the juggernaut behind economic growth, through its infrastructure programme.

This is according to data released by the Nedbank Group Economic Unit.

In its Capital Expenditure Project Listing, it revealed that the private sector accounted for 25 of the 36 new projects announced in the first half of the year – or 69%.

A tough economic climate has however resulted in an 80% drop in the total value of projects since last year. 

Conditions, exacerbated by weak consumer spending and labour strikes, had kept consumer and business confidence weak, making companies reluctant to commit to large new infrastructure investment, according to the report.

The total number of projects announced in the first half of the year was down from 56 in the same period in 2013, and the lowest since 2009, according to Nedbank. In value terms the decline amounted to around 80%, with announced projects amounting to only R31.3-billion, down from R152.4-billion in the first half of 2013.

Fewer private sector projects
Private sector projects amounted to R20.2-billion, down from R50.7-billion during the same period last year.

General government and public corporations meanwhile announced 11 new projects worth R11.1-billion. The value of new projects announced by general government fell from R23.5-billion to R8.4-billion, while those of public corporations fell to R2.7-billion from R3.7-billion.

According to the report, the community, social and personal services sector dominated in the number and value of new projects announced this year, followed by the mining and manufacturing sectors.

Nine projects worth R9.4-billion were announced under the community, social and personal service sector. This however was down from R14.6-billion last year.

Major projects include the Amatola waste treatment upgrade, valued at R2.7-billion. The project will upgrade water treatment facilities around Mthatha in the Eastern Cape to ensure reliable water supply to the surrounding communities.

Projects announced in the mining sector included a new Exxaro Belfast coal mine worth R3.8-billion, which will produce “coal for export and supply one of Eskom’s power stations in Belfast”, the report noted.

Subdued consumer spending
The outlook for the local economy remained weak, according to Nedbank, and would continue to dampen the private sector’s commitment to large investment spending.

South Africa failed to benefit from the gradual improvement of the global environment and the weak rand, as some of the domestic factors weigh negatively on sentiment.

“Domestic consumer spending remains subdued due to slower income growth, weak consumer confidence and the struggling job market,” Nedbank said in its research.

“On the production side, the weak domestic demand, together with persistent labour strikes, the uncertain regulatory environment, high input costs as well as concerns about electricity supply and other infrastructure and power shortages, continues to hurt business confidence.”

The report serves as a rough guide to the general direction in which investment is moving and as an indication of the level of confidence in the economy.

Only projects valued at R20-million or more are included; the projects must be of “an expansionary nature”. In other words, capital expenditure that allows for an increase in the level of economic output, rather than pure replacement investment that involves the replacement of worn-out or outdated capital goods necessary for the continued operation and the maintenance of current output levels.

The report noted that in certain sectors, a reliable indication of investment activity is not possible as typical investments are not large enough to be included in the schedule, even though the total capital expenditure in the sector may be substantial.

“For example, in the construction and finance sectors, typical investments are generally in vehicles, machinery, computer and other technical equipment that individually fall below the R20-million minimum,” the report said.

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