South Africa

Private investment keeping South Africa afloat

Private investment is keeping South Africa’s economy alive. However, this investment is merely subsistence investing to keep their businesses open and is not an investment in growth that will increase economic output and employment. 

This is feedback from Standard Bank’s chief economist, Goolam Ballim, who said South Africa faces a difficult and uncertain 2024. 

While Ballim believes South Africa has turned the corner with load-shedding, he expects more attention to be paid to Transnet in 2024 as it becomes a more binding constraint on the economy.

“It’s a bold statement, but we think we’ve turned the corner. We think that in 2024, we’re going to have reduced load-shedding,” Ballim said.

There is some debate on whether the impact of the collapse of South Africa’s rail infrastructure and port backlogs will have a more negative impact on the economy than Eskom. 

Ballim estimates that Transnet’s issues alone will cost South Africa up to 1% of potential GDP growth, with load-shedding having a slightly more negative impact. 

“I think on those two scores [Eskom and Transnet], it’s reason to feel that in the latter half of 2024, it will be at least two of the reasons to provide optimism,” he said.

Ballim’s positivity largely comes from the rapid uptick in private sector investment in these areas to reduce businesses’ reliance on state-run utilities. 

Private sector investment has been strong predominantly due to the need for alternative sources of energy, water, and logistics. 

However, Ballim cautioned that this will not result in economic growth as this kind of investment is mainly for subsistence – an investment to keep the business open and not expand its operations. 

Thus, this investment may temporarily boost the economy but will not result in prolonged economic growth or a permanent rise in employment. 

Investment in growth would require a fundamental shift in South Africa to a period of policy stability, swift implementation of reforms to address structural issues, and greater confidence in the economy. 

Furthermore, Ballim noted that private sector investment is still 10% below its 2008 peak. This highlights the lack of confidence companies have in the South African economy. 

The sustained lack of private-sector investment has resulted in lacklustre economic growth in South Africa. 

The lack of private-sector investment in the economy is shown in the graph below, with investment from state-owned enterprises also struggling to reach the levels seen in 2008. 

Source: Standard Bank, Goolam Ballim