By Andrew Bahlmann
Incredible as it sounds, according to the Q3 Trade and Industry Policy Strategies (TIPS) report, South Africa ranks alongside economic catastrophes Libya and Iraq as having the lowest rates of investment in the world – all below 16% among upper-middle-income economies.
Crippled economies such as Argentina and Russia rank better than us. China’s investment rate was 42%, while the average was 22%.
In the harsh realm of global economics, South Africa stands not as a beacon of opportunity but as a cautionary tale. The recent TIPS report, revealing the country’s abysmally low investment rates, is more than a statistic; it’s a glaring signal of a nation in peril, with ramifications that cut deep into the core of general inward investment, the broader business sector and employment rates. If South Africans won’t invest in their own economy, why should foreigners?
South Africa’s place among the lowest in investment rates paints a picture of an economy adrift. The general business sector faces asphyxiation as opportunities for growth dwindle. With limited capital infusion, enterprises grapple with the harsh reality of stagnation and the erosion of any competitive edge.
Behind the statistics lies a tale of missed opportunities. In a recent Business Day article, Johann Rupert rightly noted that “money goes where it is welcome”. Capital seeks fertile ground for growth, but South Africa resembles nothing so much as an investment wasteland. The economic oasis promised by a nation of potential is marred by uncertainty, a toxic political landscape, endemic corruption and a glaring lack of infrastructure development – the promise of the rainbow nation is a mirage that fades upon closer inspection.
Our low investment rate signifies a profound lack of business confidence, transforming any investment in the local economy into a high-risk venture. It is our unpredictable business environment that deters long-term investment.
The perpetual turmoil within South Africa's political corridors amplifies the economic quagmire. Investors shy away from jurisdictions where the rules of engagement change with every political tide. The nation’s approach to economic policies and reforms plays a pivotal role in shaping perceptions among potential investors, which increasingly sees us as ranking among the likes of Libya, Iraq and identifying with illiberal authoritarian countries such as our fellow BRICS nations.
The stunted growth in infrastructure development is a self-inflicted wound. Investors demand robust infrastructures, yet South Africa's inadequacies repel rather than attract. Such new investments in manufacturing capacity as do occur often stand idle for months awaiting an electricity connection. Investors seek stable and well-developed infrastructures to ensure the success and sustainability of their investments.
Frequent shifts in economic policies and regulations muddy the waters, leaving investors in a perpetual state of uncertainty. A nation with an ambiguous rulebook is hardly conducive to attracting foreign capital. The unnecessary state deters investors from making substantial, long-term commitments.
The low investment rate disguises another factor – that of an investment exodus such as we are witnessing with ArcelorMittal. The exodus of skills and capital leaves businesses starved of the lifeblood they need to thrive. In a competitive global market, South Africa risks becoming a mere footnote in the investment playbook.
A lack of investment translates to a barren job market. Skilled professionals such as engineers – and perhaps in the near future doctors – find their talents unwanted, and job creation becomes an elusive prospect. The dearth of capital-intensive projects could impact the demand for skilled professionals. Stories abound of entire departments of engineers lured en masse abroad to New Zealand, Australia and the US, further exacerbating local social and economic challenges. Not just capital, but skills too go where they’’e welcome.
This all has implications for every field of endeavour, and I see it clearly in my own – that of corporate finance and M&A (mergers and acquisitions). The low investment rates in South Africa have direct ramifications for the corporate finance and M&A sectors, influencing the overall economic landscape. Corporations may find themselves constrained in their growth aspirations due to the scarcity of available capital for expansion. The limitation can stifle innovation and hinder the pursuit of new markets.
The M&A sector may experience a slowdown as investors adopt a cautious approach. The lack of confidence in the economic outlook could lead to a decrease in M&A as businesses prioritise risk aversion.
South Africa stands on the precipice, but it is not too late for redemption. Urgent, decisive action is the need of the hour.
The harsh reality of South Africa’s investment abyss is a call to arms for policymakers, businesses and investors alike. The nation must shed the shackles of uncertainty, embrace stability and lay the foundations for an investment-friendly environment. Failure to act immediately risks condemning South Africa to economic oblivion.
Addressing the challenges associated with South Africa’s low investment rates requires a comprehensive strategy encompassing economic reforms, political stability, and targeted initiatives to improve infrastructure. There are positive signs of late that the government has finally woken up to this need – but the pace has been glacial and too easily overturned by the results of the next election.
The government, in collaboration with private sector stakeholders, must partner towards creating a conducive environment for investors, fostering confidence and encouraging capital influx.
A concerted effort both public and private sectors is essential to rectify the underlying issues, promoting a more favourable investment climate and steering the nation towards sustainable economic growth.
Andrew Bahlmann, the CEO of Deal Leaders International.