Government’s ridiculous investment target

Cyril Ramaphosa

South Africa’s 30% investment-to-GDP target has never been achieved and shows how misguided the government’s plans are.

The South Africa Investment Conference (SAIC) took place last week, with delegates from many industries in South Africa and across the world attending the event.

President Cyril Ramaphosa said South Africa had reached R1.51 trillion in pledges, overshooting the initial R1.2 trillion target by 26%.

However, the pledged investments by prominent companies do not tell the full story of South Africa’s economic challenges.

Jacko Maree, Ramaphosa’s special investment envoy, said the investment in South Africa is far too low.

Most countries which have succeeded in increasing their economic growth rate through investment did so by increasing their investment-to-GDP ratio to over 25%.

South Africa’s National Development Plan wants to achieve a target of 30% investment-to-GDP, which correlates to a 5% GDP growth target.

“We are currently tracking at below 15%, which is why you do not see the economic growth come through,” Maree said.

Getting South Africa’s investment-to-GDP ratio up to 30% requires an additional R1 trillion of investment per year.

“Those numbers will only happen when we have a very business-friendly environment and an economy that grows much faster than it currently is,” he said.

Unrealistic South African investment target

Hugo Pienaar
Hugo Pienaar, chief economist at the Bureau for Economic Research

Hugo Pienaar, the chief economist at the Bureau for Economic Research (BER), highlighted how ambitious the 30% investment-to-GDP target is.

He agreed that South Africa’s fixed investment ratio was not high enough and lower than the 15% bandied around.

“Following an all-time low in 2021 and after several years of decline, the ratio picked up to 14.1% in 2022,” Pienaar said.

Pienaar released a chart which tracked South Africa’s investment-to-GDP ratio over the last 80 years.

“On a calendar year basis, South Africa has never achieved the 30% investment-to-GDP target. The closest we came was 29.2% in 1976,” he said.

Given the context of severe social unrest, achieving such a high investment ratio in 1976 sounds counterintuitive.

However, at that stage, the country saw high levels of public sector capital expenditure and 55% of total fixed investment was from the public sector in 1976.

At that stage, private capital expenditure was also decent, Pienaar added.

Therefore, South Africa’s 30% investment-to-GDP target amidst a shortage of electricity, poor rail services, and failing infrastructure is misguided.

The chart below, courtesy of Pienaar, shows South Africa’s fixed investment ratio since 1946.


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