South Africa’s disappearing business case

South Africa must get the basics right to become an attractive investment destination for local and international companies, particularly in electricity provision and logistics.

This is according to Business Leadership South Africa (BLSA) CEO Busi Mavuso who spoke to CNBC Africa on the sidelines of the South Africa Investment Conference (SAIC).

At the conference, President Cyril Ramaphosa announced South Africa had received R1.51 trillion in investment since 2018. This was 26% greater than his initial target.

Ramaphosa also declared a new target of R2 trillion for further investment over the next five years.

The series of conferences aims to drive economic development and bring economic activity to overlooked areas.

A vital part of this programme is the various Special Economic Zones (SEZs) spread across South Africa in places such as Richards Bay, Coega, Atlantis, and Tshwane.

SEZs aim to ease investment into specific areas of the country close to logistical hubs through financial incentives, tax breaks, and industrial policy.

This is part of the government’s goal of driving export-led growth in South Africa, mimicking the development path of Asian economies such as South Korea and China.

The basics need to be fixed first

BLSA CEO Busi Mavuso pointed out that, to have export-led growth, companies have to be able to get their goods to market.

This is increasingly difficult in South Africa, with elevated load-shedding, inefficient ports, and poor rail services.

The network industries of electricity, logistics, water, and telecommunications are vital for growing an economy.

Three of those four industries are dysfunctional, with telecommunications being the only privately operated and functional industry.

The telecommunications industry provides an example of how a state monopoly can be opened up to private competition in a way that benefits consumers.

Unfortunately, said Mavuso, the government still thinks of itself as a developmental state. The central problem with this thinking in South Africa is that it requires a functional government.

The deterioration in providing essential services, particularly electricity and logistics, significantly weakens our business case.

Business confidence within South Africa is plummeting, and local businesses are now joining their international counterparts in looking for opportunities outside the country.

“Our business case is weakening every day,” Mavuso said.

Investment is shifting from South Africa to East and West Africa. This means South Africa will lose its status as the gateway to Africa.

Positive outlook

However, Mavuso noted that positive developments within South Africa would make it a more attractive investment destination.

South Africa is “seeing the emergence of a pro-business ideological shift” by the government, exemplified by its reform agenda.

The government and the private sector fundamentally agree on a reform agenda for the country but disagree on implementing that agenda.

The private sector is “ready to roll up our sleeves and get our hands dirty” to solve South Africa’s problems and develop its economy.

However, the government is moving far too slowly in opening up critical industries for private participation.

This slow pace is a serious problem as the country’s issues must be urgently addressed and will take time to fix.

Mavuso admitted that the government is unwilling to privatise specific industries completely.

She called on businesses to push the agenda and the government to allow “intensive private participation”.