President Cyril Ramaphosa is set to more than achieve his “audacious” commitment to raise R1.2 trillion of investments in five years. (Waldo Swiegers/Bloomberg via Getty Images)
President Cyril Ramaphosa is set to more than achieve his “audacious” commitment to raise R1.2 trillion of investments in five years.
The pledges at this week’s South Africa Investment Conference, the fifth in the cycle, are the “cherry on top” — as the president’s economic adviser, Trudi Makhaya, put it during a business breakfast last week — of what appears to have been a successful investment drive. Why then, as the South Africa’s economy limps on, does Ramaphosa’s attempt to claw back capital formation feel like anything but?
Last year, the conference hit an impressive target, having attracted R1.1 trillion in investments. That is more than 90% of the amount the president had hoped to raise during the five years.
For a president whose rise to power was backed by the promise he would bring back investment and revive the economy, this ought to mark an important milestone. There is just one problem: the apparently large amount of capital formation Ramaphosa has managed to bring in hasn’t translated into what the rest of us really covet — inclusive growth and, most importantly, jobs.
In his opening address at the first conference in 2018, Ramaphosa said the ambition to raise at least R1.2 trillion came from an understanding that “no meaningful growth and no significant job creation would be possible without a massive surge in productive investment in the economy”.
At the time, the Trade & Industrial Policy Strategies (Tips) think tank noted that adding that amount of investment to the economy would go a long way towards inspiring an economic turnaround. “In 2017, total gross fixed capital formation in South Africa came to R870 billion; attracting R1.2 trillion, even if realised over a five-year period, would boost that amount by over 25% every year,” Tips said in a briefing note.
The country’s economy grew just 1.3% in 2017, which was considered a positive development considering the miserable 0.6% growth recorded in 2016. But 1.3% was not enough growth to create the number of jobs needed to bring down the country’s climbing unemployment rate, which hit 26.7% in the fourth quarter of 2017.
In this context, Ramaphosa’s emphasis on boosting investment was crucial, Tips said, “but getting commitments and projects is merely a first step. Assuring investments contribute to inclusive growth is a more complex challenge, but it is vitally important.”
The finer details of the R1.1 trillion investment pledges gives a far better picture of their current effect on the economy.
Of the 230 investment announcements, 83 are completed, 77 are under construction, 28 are in the early preparation stage and 26 are progressing slowly. According to Minister of Trade and Industry Ebrahim Patel, the latter 26 projects have slowed as a result of economic factors, such as changes to expected market demand.
The actual amount of money that has flowed from investors and their financiers to construction companies and suppliers comes to about R450 billion, Patel said — about 40% of the total.
This means the majority of the investments pledged through the drive are still in the pipeline, which makes sense if you consider the still slow pace of gross fixed capital formation growth.
Investment finally recorded a noteworthy recovery in 2022, from the declines recorded in the decade prior to Ramaphosa’s presidency, but it took some time to get there.
In 2007, real gross fixed capital formation grew by 14.8%. By the end of 2017, this had slowed to a mere 0.4%. In 2018, despite there being an investor-friendly president at the helm, gross fixed capital formation contracted by 1.4% as a result of low business confidence, regulator uncertainty, electricity supply disruptions, subdued economic growth and concerns about fiscal sustainability.
Similar conditions caused investment to contract again, although to a lesser extent, in 2019. The year that followed — the pandemic year — marked the sharpest decline in gross fixed capital formation in at least two decades. Together, Ramaphosa’s first term saw three consecutive contractions in investment, before picking up in 2021 and 2022, when capital formation grew 4.7%.
Ramaphosa’s ambitions were disrupted by one black swan event as well as the prevailing uncertainty about global economic conditions, which have made rousing investor confidence an almost Sisyphean task. Investor confidence was at the centre of the president’s mission at the first investment conference and, five years later, it is just as daunting — if not more so — to bet on the country’s economy, which is forecast to grow less than one percent this year.
Behind weak private sector confidence is the public sector’s own hesitancy to invest in the country’s economy, a result of the state’s miserly approach to spending. In every quarter of 2021, government gross fixed capital formation contracted — a trend that turned around in 2022. Detracting from the gains in 2022 were four consecutive contractions in investment by public corporations.
Inadequate public spending, which has resulted in deteriorating infrastructure and poor service delivery, has made South Africa’s investment case a far more difficult sell than it needs to be. As such, Ramaphosa’s investment drive has exposed the underlying dilemma of leaning too heavily on the private sector, which has been hesitant to pour money into what some have labelled a failing state.
Journalist Eric Schlosser once wrote that the spirit of every American age is manifest in its public works, “in the great construction projects that leave an enduring mark on the landscape”. Schossler was writing at a time when discourse in the US had turned against “big government” — which Ronald Reagan had proclaimed was not the solution, but the problem.
Ramaphosa’s presidency so far, which ought to have ushered in an era of rebuilding, has been defined by an investment drive which, by the numbers alone, has been a great success.
But, with many South Africans feeling worse off than they did before the president’s first term, it is difficult to grasp why so much has been laid at the feet of the private sector. No victory can be claimed until those investments create the growth and jobs South Africa so desperately needs.