One way to fix South Africa’s infrastructure crisis

One reason for South Africa’s crumbling infrastructure is the country’s low fixed investment rate, with the private sector responsible for a large majority.

Investec chief economist Annabel Bishop said business confidence, and particularly satisfactory operating conditions, are key to incentivising companies to invest more.

Bishop pointed out that South Africa’s fixed investment is particularly weak. The latest data indicate that gross fixed capital formation (GFCF) decreased by 1.7% quarter-over-quarter in Q1 2025.

This decline contributed to suppressing the GDP growth rate in the first quarter, which came out at a meagre 0.1%.

The negative contributors to fixed investment in this quarter were lower investment in the larger sections, namely residential buildings (-5.8%), machinery and other equipment (-1.4%), construction works (-2.8%) and transport equipment (-3.1%).

Bishop explained that, in real terms, GFCF contracted by 3.9% year-on-year in 2024. At the same time, business confidence remained depressed, with weak sentiment on underperforming growth and infrastructure PPPs yet to make a noticeable difference. 

This trend has continued well into 2025, as business confidence fell further into negative territory in the second quarter, following the depressed reading in the first quarter.

In Q2 2025, only 40% of respondents were “satisfied with prevailing business conditions”. Bishop said this gives the private sector little incentive to increase capacity formation.

Since 2017, South Africa has seen the private sector account for an average of 71% of fixed investment carried out versus the total. 

However, a notable trend has emerged in 2025 that could spell trouble for South Africa’s infrastructure crisis.

In the first quarter of 2025, government fixed investment rose 0.3% quarter-on-quarter. In addition, after contracting throughout last year, public corporations’ fixed spending increased by 13.8% quarter-on-quarter.

However, in the private sector, gross fixed capital formation fell by 4.5% quarter-on-quarter.

Therefore, the first quarter of 2025 saw private investment in total fixed investment dip to 69.6%.

Bishops attributed this to South Africa’s depressed business confidence, explaining that satisfactory operating conditions are key to the incentive to invest more.

Factors holding South Africa back

Bishop’s argument was recently echoed by the Organisation for Economic Co-operation and Development (OECD) in its economic survey of South Africa.

The OECD explained that, over the past decade, real GDP growth in South Africa has been subdued. 

The organisation stated that while ongoing reforms should boost potential growth, further reforms are necessary to advance the country towards meeting its goals of reducing poverty, inequality, and unemployment.

In particular, the organisation highlighted persistent insufficient access to electricity and rail and port bottlenecks as drags on activity, investment, exports and living standards over recent years.

“Limited public and private investment, the high cost of doing business and corruption have also reduced growth over the past decade,” the OECD said. 

“Low levels of competition and shortages of skilled workers in some sectors have limited potential growth.” 

Bishop also highlighted the slow pace of reforms at Transnet as a significant drag on business confidence in the country.

“With rail infrastructure still severely constrained, particularly at the ports, and port capacity itself also still constrained, exporters, and particularly bulk commodity exporters, have little incentive to expand if their exports are already constrained,” she said.

However, the OECD highlighted that South Africa has taken steps to turn this around, as the country starts to undergo significant reform efforts and address many of these structural constraints.

The organisation said continuing this progress will help rebuild potential growth as supply constraints ease, business and investor confidence increase and job creation accelerates.

Bishop said South Africa’s infrastructure reforms need to quicken over the medium term for growth to reach 3.0% year-on-year, a goal stated by the Government of National Unity.