EDITORIAL: Even modest capex projections can prove too optimistic for SA

When Cyril Ramaphosa launched his first investment conference not long after he became president in 2018, he undertook to raise $100bn in new investments over five years. At the time this was equivalent to R1.2-trillion. At current exchange rates, it is closer to R1.9-trillion.

So when the president says, as he did in his 2023 state of the nation address, that he now plans to ramp his ambition up to R2-trillion by 2028, it’s not saying much. And though the sharp depreciation in the exchange rate since those early Ramaphoria days in part reflects global factors, it is also a disturbing reminder of how far SA’s economic policy own goals have sunk its prospects and damaged investor perceptions.

Ramaphosa goes into his fifth investment conference this week able to report for the first time that the past year has seen a rise in fixed investment spending, which had declined in real terms for five consecutive years before it stabilised in 2021 and jumped 4.7% in 2022. Most of that came from the private sector,  which was unshackled by electricity reforms that allowed it to build power stations of any size without applying for licences.  .

The trends are encouraging. But investment is still more than 10% below its pre-Covid-19 level. And it is equivalent to just 14.1% of GDP — less than half the National Development Plan’s 30% target, and well below even the 16% at which it stood at the time of Ramaphosa’s first investment conference. Nor are prospects encouraging: Nedbank’s latest survey of capex projects shows the number and value of new project announcements declined sharply in 2022. Nedbank’s economists, therefore, expect growth in investment spending to slow to 1.5% this year.

They cite the usual culprits including the electricity crisis, rail and port constraints, and policy uncertainty along with falling commodity prices and falling global and local growth. And with business confidence levels deteriorating, and SA’s economic growth rate expected to fall to as low as 0.1% in 2023, Nedbank’s modest capex projections could yet prove too optimistic.

In this context, it’s not clear at all what yet another investment conference might hope to achieve. By the fourth conference a year ago, Ramaphosa had persuaded foreign and local companies to pledge a total of R1.1-trillion worth of investment projects. He won’t find it hard at all this week to ensure the new total exceeds his original R1.2-trillion target.

In money terms, SA’s total investment spending is running at about R990bn a year. In theory, the pledges could make a difference over five years. But that’s the case only if they represent genuinely fresh investments, which those companies weren’t already going to make anyway.

Ramaphosa’s feel-good investment conferences provide an important platform for investors and potential investors to engage with the government, and for the government to hear from these investors. The conferences may help to get some of these companies over the line. But all the evidence is that most stand up on the stage to pledge projects they were going to do anyway. Nor do all the pledges represent investment into genuinely new productive capacity that will boost SA’s longer-term economic growth prospects.

Added to that is that pledges and plans don’t necessarily translate into actual investment projects in the end. Companies can commit but they often still have to jump all the regulatory and administrative hurdles before they can press ahead. By the time of the previous conference, less than half of the money pledged had actually been spent. Some projects had been cancelled.

The president’s investment team and his investment envoys spend much of their time simply trying to “unblock” the many and varied holdups, at municipal, provincial and national government levels as well as at the various regulators, that make SA’s investment environment so difficult, even for those keen to spend.

And that’s really the bottom line. SA’s woefully low rate of investment is not for a lack of conferences. Nor is its woefully low level of business confidence because of some sort of lack of faith. They reflect real material conditions — essentially that this remains an unattractive and difficult economy in which to invest.

If Ramaphosa really wants to rally investment spending he needs to show serious urgency in implementing the reforms he has long promised to sort out SA’s energy, transport and other infrastructural obstacles as well as its crime and corruption issues. He needs to sort out his own government too, at all levels. Instead of more promises and pledges, he needs to be able to tell his investment conference audience what he has done to make it much easier and more attractive to do business in SA.