South Africa’s political and business elite descended on the Sandton Convention Centre in Johannesburg in early November to watch a well-choreographed parade of companies pledge to invest R363 billion in the economy and create 412 000 jobs over the next five years.
At the second South Africa Investment Conference, President Cyril Ramaphosa said: “The commitments made at last year’s conference and those made today have placed us firmly on the path to achieve our ambitious target of securing $100 billion [about R1.5 trillion] over five years. We do this not as a gimmick, we do this after close and deep collaboration with the various companies. Last year, we sought to raise R300 billion. And we did. This is not a talk shop. This is serious business.”
Private-sector companies that made pledges included MTN (R50 billion), Exxaro (R20 billion), Coca-Cola (R14.7 billion), Sappi (R14 billion), the Amdec Group (R14 billion), the Agricultural Development Agency (R12.9 billion) and Liquid Telecom (R8.5 billion). Public-sector pledges came from the South African National Roads Agency (R23 billion), the Industrial Development Corporation (R18 billion), Airports Company South Africa (R12.8 billion) and the Limpopo Eco-Industrial Park (R10.7 billion). The Shanghai-based New Development Bank, established by Brazil, Russia, India, China and South Africa (the Brics countries), pledged R23 billion. French companies pledged R20 billion.
Last year, Ramaphosa appointed investment envoys – Old Mutual chairperson Trevor Manuel, MTN chair Mcebisi Jonas, Standard Bank Group deputy chair Jacko Maree and Afropulse Group chair Phumzile Langeni – to spearhead his $100 billion investment drive. He established a R400 billion blended finance infrastructure fund in September 2018 that would receive R100 billion from the government over 10 years and leverage additional resources from the financial sector. The fund was part of the government stimulus and recovery plan that was announced soon after South Africa headed into its second recession since the global financial crisis of 2007-2008.
At the conference, the president announced additional investment envoys. Former energy minister Jeff Radebe will focus on oil and gas, and Derek Hanekom and Elizabeth Thabethe, former minister and deputy minister of tourism, respectively, will concentrate on tourism. Ramaphosa appointed former Gauteng member of the executive council for economic development Kgosientso Ramokgopa to head a newly established investment and infrastructure office in the presidency. Ramokgopa will work with the Presidential Infrastructure Coordinating Commission to grow the economy, create jobs, empower small businesses and provide services.
In his recent medium-term budget speech, Minister of Finance Tito Mboweni said the infrastructure fund envisioned by Ramaphosa as part of his economic stimulus plan, which is hosted at the state-owned Development Bank of Southern Africa, had identified a R500 billion pipeline of potential projects and received an allocation of R10 billion over the next three years. The fund, which will blend public and private sources of finance, has allocated R529.8 million to pilot projects – the student housing infrastructure programme and a small harbours programme – during the current financial year, according to the medium-term budget policy statement.
The South African Federation of Trade Unions, however, says the investment conference was a facade that sought to obfuscate the facts and raise false hopes that steps were being taken to address extremely low investment levels by the private and public sectors.
Despite the slick marketing – “There can be no better time to invest in this growing, dynamic economy,” said Ramaphosa – there has been a collapse in investment in South Africa’s economy. As economist Azar Jammine pointed out in an interview on business and financial markets channel Business Day TV, there has been no sign of additional investment in the National Treasury’s forecasts.
“I told the president at an election rally that your own treasury’s forecasts show no signs of the R290 billion extra that was supposed to have been committed at last year’s conference or your intention to get an additional $20 billion a year. There is no sign of it in the numbers and forecasts,” said Jammine.
Indeed, in its medium-term budget policy statement, the treasury forecast a 0.8% decline in gross fixed capital formation (GFCF), a measure of investment in the economy, during 2019. This will be the fourth consecutive annual decline of GFCF. Between 2015 and 2018, there was a 7.8% collapse in GFCF. As a percentage of gross domestic product (GDP), the sum of all goods and services produced in the economy, GFCF has declined to 17.9% of GDP from 20.9% in 2015.
The main reason for the decline in overall investment has been a public-sector investment strike owing to austerity measures and the strained balance sheets of state-owned companies, especially Eskom, which is R441 billion in debt.
Between 2015 and 2018, public-sector investment – by general government and state-owned corporations (SOCs) – plummeted by 18%. Investment by general government (national, provincial and local) declined by 9.5%. Investment by SOCs collapsed by 25.6%. Investment by private enterprises increased by 4% over the same period. The public sector’s share of total investment declined to 31.4% from 36.1% between 2015 and 2018.
There is one possible explanation why the investment pledges do not appear in the official statistics.
As some conference delegates said, the parade was a farce, allowing companies to repackage existing projects in their investment pipeline as new ones and get free publicity while sharing the stage with the president and Cabinet ministers. In other words, the investment would have happened anyway without a conference.
For example, Anglo American pledged R72 billion last year, but most of that referred to an investment in a diamond mine that started production in 2013. Also, the new pledges are equivalent to about R73 billion a year. This is less than 10% of the total investment of R874.4 billion in South Africa’s economy in 2018. The pledges will not shift the dial or close the country’s investment gap.
The government’s long-term National Development Plan has an annual investment target of 30% of GDP. In 2018, GDP was R4.9 trillion, equating to an investment target of about R1.47 trillion. This means that South Africa has an annual investment shortfall of about R600 billion. To close the shortfall, there must be a recovery in public investment and a higher rate of economic growth.
Private investment follows economic growth. It does not kick-start the economy. Therefore, the public sector has to lead the process of stimulating the economy.
Neva Makgetla, a senior economist at research firm Trade & Industrial Policy Strategies, says the government cannot talk companies into investing in an economy that has low growth rates and austerity budgets that have slashed public investment. “These investment conferences should not distract us from doing what must be done to grow the economy. The government must develop innovative ways of stimulating the economy.”
The pledge to create 412 000 jobs is implausible. About 300 000 of the job opportunities relate to a R12.9 billion pledge from the recently established Agricultural Development Agency, a private-sector initiative led by Roelf Meyer, a businessman who negotiated the 1996 Constitution with Ramaphosa.
However, it appears that the agency has not yet raised the funding to become operational. Why should Ramaphosa’s third employment target succeed when others such as the Youth Employment Service and the Jobs Summit Framework Agreement failed to achieve their targets of creating 300 000 and 275 000 jobs a year, respectively?
Despite what Ramaphosa says, the investment conference was another gimmick that fails to address the country’s low levels of investment and job creation.