Frontline Africa Advisory

SA Local Investment: A Green Shoot in South Africa’s Barren Economy

SA Local Investment: A Green Shoot in South Africa’s Barren Economy

South Africa hosted its second Investment Summit on the 6th of November in an effort to drive more investment in the country and reach President Cyril Ramaphosa’s goal of R1.2 trillion in investments in the next four years. This year’s Summit ended with R363 billion in commitments, a considerable increase from last year’s R290 billion and placing the drive past its halfway mark. In his weekly newsletter published on the 11th of November, President Ramaphosa specifically highlighted the increase in investment commitments from South African businesses, which has been lacking over the past few years. Of the R363 billion committed this year, local companies committed around R262 billion, up from the R157 billion committed last year.

The loosening of the purse strings by local businesses demonstrates a growing confidence in President Ramaphosa’s government and its ability to turn around the economic fortunes of this country. It can be argued that they have finally realised that it is of no use to them and the economy to sit back and hope that government solves all the problems South Africa is faced with. Now that business has shown a willingness to partner with government in addressing the current economic woes faced by the country, government must also come to the party in a big way and quickly address some of the challenges that have deterred business from investing in the country. This includes predictable electricity supply, skills development and less red tape.

There are some issues, however, that have been raised by the business community that government has not adequately addressed and should be looked upon with haste. The South African Chamber of Commerce and Industry’s (SACCI) Business Confidence Index (BCI) measured a drop in business confidence for the month of October due to lower imports and exports, rand depreciation and load shedding. The stability of Eskom is a priority. A stable and predictable power supply is vital for an economy to be productive and currently Eskom remains the biggest threat to attracting investments to the country. While the recently unveiled Eskom turnaround strategy aims to increase investor and business confidence, investors are not completely sold on its proposals as seen by the immediate weakening of the rand. Government has unveiled similar plans in the past, with very little to show for it. According to FirstRand’s Rand Merchant Bank unit and the University of Stellenbosch’s Bureau for Economic Research index, uncertainty and lack of consensus around the issue of land expropriation have been cited as matters of concern. The sooner Parliament concludes its work on the issue of land expropriation with or without compensation the better it will be, not only for the country’s citizens, but also those investors who remain on tenterhooks.

In the past, SA companies have seen more value in investing abroad due to a weak economic environment and growing policy uncertainty. This was clearly seen in the so-called 2017 ‘investment strike’ which saw SA’s investment sector sitting on over R1 trillion in cash reserves while the country’s investment levels remained stagnant. The recent increase in investment commitments is a positive sign and shows increased confidence in South Africa’s future. A vote of confidence from local businesses is now more vital than ever, given the tough economic period South Africa finds itself in.  Increased investment can create much-needed employment opportunities, boost the economy and assist in luring foreign investment.

Written by Pearl Mncube

LinkedIn: Pearl Mncube

Twitter: @pearlmncube

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