RAMAPHOSA INITIATIVE
CLAIRE BISSEKER: Exports trump investment as growth driver
South Africans are delighted that President Cyril Ramaphosa is crisscrossing the globe and making progress towards raising $100bn in foreign direct investment to get growth going. But a deeper look at the economy suggests this could be the wrong priority. As welcome as Ramaphosa’s investment drive is, it is based on the assumption that SA’s economic recovery will be largely led by an acceleration in private fixed investment. If this happens it would in fact be most unusual. This is because in SA fixed investment typically responds with a lag to rising demand; rising GDP causes an acceleration in fixed investment, not the other way around. Typically, a pick-up in global growth stimulates a very strong response from South African exports. As the upward phase of the business cycle unfolds, companies’ spare capacity is used up and they respond, usually very late in the cycle, by investing in new plant and machinery to expand capacity.Over the last few years this relationship has broken ...
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