Cyril Ramaphosa. Picture: ELMOND JIYANE
Cyril Ramaphosa. Picture: ELMOND JIYANE

SA will be hard pressed to realise its ambitions of attracting R1-trillion of private investment in infrastructure if its past record is anything to go by.

The investment drive began two years ago and is a key component of an economic blueprint unveiled by President Cyril Ramaphosa last week that aims to revive the coronavirus-battered economy. It envisions the government spending R100bn on infrastructure, an allocation that’s expected to galvanise 10 times as much private investment within four years.

Yet IMF data shows investment as a percentage of SA’s GDP has been in decline since 2016 and the Washington-based lender forecasts that the ratio will reach a record low of 13% in 2020. That compares with 25.4% in Nigeria and 21.5% in Angola.

“Capital expenditure replacement rates continue to fall well short of what is required to spur a meaningful growth recovery through the fixed-investment channel,” says Jeffrey Schultz, an economist at BNP Paribas SA.

The pandemic has made it all the more difficult to effect a turnaround, with companies including SA Breweries and glass manufacturer Consol shelving expansion plans. Most government-owned companies are cash-strapped and in no position to embark on a massive investment spree.

“It is going to be an uphill battle to get the investment drive going,” says Nicky Weimar, chief economist at Nedbank Group. “The reality in SA’s case is really that government has no track record in delivering infrastructure on budget and on time, and the returns on fixed public investment in SA are not only low but often negative.”

Ramaphosa hosted conferences in 2018 and 2019 in a bid to drum up investment that secured R664bn in spending pledges from private and state-owned companies. Data collated by his office shows about a quarter of the money has already been spent.

By the end of June, 276 potential investments worth R2.3-trillion had been identified. The following month, 62 priority projects worth R340bn were gazetted, a process that will allow licensing and other regulatory processes to be fast-tracked, with the construction of several housing developments and roads already under way, according to the presidency.

The Association for Savings and Investment SA, an industry body of fund managers and insurers, has said its members are willing to commit funds to viable projects and sees the new, centralised approach taken by the government towards development expediting the process.

While the government may describe projects as “shovel ready”, that doesn’t necessarily mean investment flows are imminent, but rather that requests for proposals and information are being issued, says Schultz. That means there could be lags before the spending is reflected in the data, he says.

Weimar is sceptical the state or private companies have sufficient capacity to develop projects on the scale envisioned by the government, because many skilled personnel have emigrated due to a dearth of local projects over the past decade. “The construction sector is a shadow of what it used to be,” she says.

Bloomberg

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