Declining levels of investment could hamper growth as backers grow wary
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DWINDLING levels of investment in South Africa could halt the potential economic growth as investors grow increasingly wary about the country’s ongoing energy and water supply challenges, the SA Chamber of Commerce and Industry (Sacci) said yesterday.
This as business confidence in South Africa fell to a one-year low in September amid a decline in retail sales, manufacturing output and the real value of building plans passed.
Sacci said the business confidence index (BCI) fell to 91.0 points in September from 91.9 in August, after registering a highest level so far this year of 97.0 in May.
This was the lowest reading since September 2020, but reflected a better business confidence level than the pre-Covid level of 89.9 points in March 2020.
Sacci said energy and water supply concerns, with increased utility tariffs, and higher fuel prices were also major contributors to a wary business outlook.
Sacci president Alan Mukoki said secure energy supply generally remained a crucial concern to the business community.
Mukoki said the dire need for capital to finance fixed investment remained a key element influenced by short-term business confidence developments, but more importantly by longer-term investor confidence of foreign as well as local investors.
“It is evident that investment from both the public and the private sectors has for quite some time, since 2016, not been adequate to sustain economic development.
“Clear, consistent and investment-friendly economic policy, as well as the application thereof, is critical to convince both local and foreign investors of a reasonable return on investment.”
The view about lack of investment was shared by the SA Reserve Bank (SARB) last week, which said gross fixed capital formation remained weak despite the strong recovery in household consumption and also production levels.
SARB said the July unrest had further dented investor confidence.
“Over the period under review, forecasts for investment have shifted to being less negative, but investment growth is still projected at -0.3 percent in 2021, before improving to 0 percent in 2022 and 1.8 percent in 2023,” SARB said.
“Weak investment appetite also marked the pre-pandemic economy, as electricity supply was constrained, and with the extraordinary uncertainty associated with the pandemic helps explain the slow recovery in investment spending expected over the medium term.”
Meanwhile, Sacci said the decline in business confidence was partly offset by five sub-indices of the BCI that had a positive month-on-month impact on the business climate between August and September.
Notable positive month-on-month contributions came from increased merchandise export and import volumes, and an increased number of new vehicle sold.
The exceptional improved year-on-year merchandise export volumes, a stronger rand exchange rate, and an increased number of new vehicles sold, made valuable contributions to the business mood when compared to a year ago.
Sacci said although the Covid-19 pandemic had a worsening effect in some parts of the globe since early 2021, improved vaccine application had supported economic recovery as a rule.
It said the upcoming Medium-Term Budget Policy Statement in November should serve to give direction on positive economic and business developments going forward.