Johannesburg – The past two years have caused South Africa’s rainbow to fade. From Covid-19 and its ensuing lockdowns to Jacob Zuma’s imprisonment and its ensuing riots, the country has seen its fair share of troubles. With troubles growing, South Africa is looking less like a country that should be invested in. Investors say there is hope.
The fourth South African Investment Conference (SAIC) recently took place in Johannesburg. The aim of the conference was to raise R1.2 billion in investment in South Africa in five years. In the past four years it has raised R1.1 billion. With R332 billion in pledges occurring at the conference this year, Annabel Bishop, Investec Group Economist, said to investors South Africa is still a viable option.
“It’s showing very substantial investments and commitments from large corporations and of course it was one of the effects which helped the currency strengthen last week but of course there’s a number of effects. The most important one being the strong commodity exports we are seeing in South Africa. Before the conference in 2022, R774 billion had been pledged by private investors and that’s both domestic and international companies that are going to expand the infrastructure in South Africa.”
This is targeted at the private sector and not at the government. By 2018, R770 billion was committed to a range of economic sectors. Although Covid caused things to come to a standstill, a number of those projects have been completed, explained Bishop.
“The ones that have already been pledged in the previous conferences, out of the 152 pledges, forty-five have been completed or will soon be completed and they [SAIC] said, another fifty-seven are under construction. I think the key point here is that there’s also some involvement from development banks as well. We do see significant investment from the development banks of South Africa.”
These investments would have happened with or without the conference. According to Bishop, the reason for having the conference is just to inform the country and the economic population while also providing a boost to investor confidence.
Part of the Economic Restriction and Recovery Plan proposes about R500 billion in infrastructure investment over the next three years from the general government and another R100 billion over a decade from 2019. These projects could drive a stronger growth in South Africa, said Bishop.
“We believe that economic growth in South Africa will lift from what is commonly expected, to average around 2% this year, to perhaps around 3% in five years’ time. That really just indicates to us the strength of the economy. We could put other factors in efficient electricity and socio-political environment.”
What’s important to note is infrastructure projects don’t generate jobs immediately. It takes time to complete and then can provide some benefit to the economy.
“Infrastructure projects take several years to start, build and complete and then start being part of the productive capacity of the economy. They do create employment in the infrastructure world itself, but I think the point rather is that these are part of the productive capacity of the economy.”
Bishop is hopeful that unemployment can be slowly eradicated or eroded over time with the methods the president is currently implementing.
“I’m hopeful that the strong, positive momentum that the president is putting in place to involve the private sector and the economy will create the stronger means needed to start to erode unemployment. I think rather than expecting it to be eliminated in the short term, it’s something which needs to be eroded down in the long term.”
During the 2000s, under Thabo Mbeki’s reign, unemployment dropped from 30% to closer to 21% and this is because of his “strong infrastructure drive and good governance,” according to Bishop. Had this continued, she believes that in 2022 South Africa would have been down to 10% unemployment.
For Bishop, the years after 2017 have been used to try and repair the damage that occurred during the Zuma administration.
“Now what we are trying to do is repair the finances, repair the infrastructure, repair the damage that’s been done to society and to the socio-economic side.”
It is now up to all the role-players in the economy to come together and work with each other if the damage is to be repaired.
“We need help from all sectors, we need involvement from all areas from private to government to domestic and international investment. It all impacts the economy. To lift and strengthen economic activity, broaden it and make it inclusive and work down the unemployment rate.”
The African Continental Free Trade Area is an ambitious trade pact to form the world’s largest free trade area. It was founded in 2018 with trade beginning as of 1 January 2021. Trade pacts like this, connecting countries on one continent together, have been quite beneficial for Europe. Trading with other countries is vital for a strong economy and this trade pact is essential to that.
“The free trade agreement is aimed at strengthening that trade [between African countries]. In fact, South Africa seeks to strengthen trade to all countries in the world…. We seek to broaden and include more countries so we can strengthen our economic activity in South Africa and have more destinations to export our products to.”
With the ongoing war in Ukraine, oil prices are set to increase even further which will raise the cost of living even more. Bishop pointed out that South Africa is food secure, and wheat is not primarily imported from Ukraine or Russia.
“South Africa is food secure. We produce most of the food we need ourselves. We produce large quantities of staple foods… We don’t expect to see an enormous difficulty there unless you see a very big conflict in Eastern Europe.”
When it comes to oil, South Africa is not as lucky. We don’t produce our own oil. We have oil reserves that have been discovered off the West coast, but environmental concerns are halting their extraction. Africa prefers to import oil than use its own. This weakens and damages the country’s trade balance.
The longer the war continues, the more likely it is that oil will shoot up in price which will cause an increase in fuel, but the government could be willing to help motorists, said Bishop.
“Government has said it could reduce the taxes and fuel levies that have garnered on the petrol price temporarily and that extends to diesel prices as well as paraffin prices and that could help consumers get through this difficult period. While there is this R2 per litre increase scheduled for April, we expect that government might already start to reduce some of the costs. These are temporary measures to assist with the high inflation environment.”
Julie Alli spoke with Annabel Bishop an Investec Group economist:
