South Africa

South Africa needs one thing to go from zero to hero

South Africa’s economic growth is heavily reliant on private sector investment, and the next phase of the country’s business-government partnership offers a promising avenue for economic progress.

This is according to Investec chief economist Annabel Bishop, who analysed fixed investment trends in South Africa.

Bishop found that the private sector has made 71% of the fixed investments in South Africa since 2017, up from 65% in the prior eight years.

In contrast, the government and SOEs only made around 17.5% and 11.7% of fixed investments in the country, respectively.

“The private sector continues to generate the most fixed investment in the country, persistently accounting for the bulk of new investment in machinery and other equipment, including transport equipment and residential buildings,” Bishop said.

In the second quarter of 2024, fixed investment spending in South Africa contracted by 1.4%, compared to a decline of 1.6% in the first quarter. This was due to concerns over the outcome of the May general election.

However, investor sentiment increased in the markets from mid-June, when the Government of National Unity was formed.

Bishop explained that while sentiment picked up, most of 2024’s second quarter reflected concerns over the country’s political outcomes, so risk only marginally lessened in this quarter.

She said the Reserve Bank’s third and fourth-quarter fixed investment data will likely show improved outcomes, with gross fixed capital formation (GFCF) growth lifting in 2025.

She added that fixed investment growth of nearly 4% year on year is expected in 2024 in real terms, and the next two years will likely see this lift to around 5.0%. She expects that, by 2029, fixed investment will have grown to 7.0%, with GFCF constituting 14% of GDP. 

“Fixed investment is expected to continue to be driven by the private sector over the medium-term, with similar growth rates to total fixed investment, aided by the business-government partnership, with phase two launched this week,” Bishop said.

President Cyril Ramaphosa meeting with business leaders and minister

The President, ministers, and business CEOs recently launched Phase 2 of their Government-Business Partnership. This collaboration focuses on improving sentiment and investment in economic growth and employment. 

“Phase 1 of the partnership, initiated in 2023, demonstrated the power of collaboration between government and business,” Bishop said. 

“It tackled some of the country’s most pressing challenges in the areas of energy, transport and logistics, and crime and corruption.”

The second phase will aim to scale these efforts with increased resources and a clear set of actions to contribute to more rapid economic growth by increasing the pace of reforms and shifting national sentiment.

President Cyril Ramaphosa recently said, “The collaborative efforts of this partnership, and the progress we have made so far, are well aligned with the priorities of the Government of National Unity.” 

“If we expedite reforms, more quickly achieve operational improvements at Transnet and Eskom, and swiftly mobilise private sector investment, we could see GDP growth reach 3.3% by the end of 2025, providing a crucial uplift from the current baseline.” 

He said the key to unlocking this growth will be accelerated reforms across the three focal areas: energy, transport and logistics and crime and corruption.

The planned phase two of the business-government partnership seeks to unlock substantially faster economic growth, job creation, and an improved environment for doing business in South Africa.

Bishop said a 3.3% growth rate by the end of 2025, or annualised growth of 0.7% every quarter, would require Transnet to recover far faster than it currently is. 

She said rail and port constraints are currently key in limiting GDP growth in South Africa.

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