The Nedbank Capital Expenditure Project Listing, which shows a dramatic decline in fixed investment activity in the first half of 2023, flashes a strong red light about future investment and growth trends in the South African economy.

This is as persistent power outages, rising interest rates and cost pressures weigh on profitability and erode business confidence.

In commenting on the survey, Prof Raymond Parsons, economist from the North-West University (NWU) Business School, says it is generally recognised that, if South Africa is to reach growth rates that exceed 3% per annum and reduce unemployment, total fixed investment needs to be about 25% of gross domestic product (GDP).

“At present, this ratio hovers at only about 14% of GDP, which is inadequate to meet South Africa’s socio-economic needs. The Nedbank survey is therefore not good news on this front.”

According to Prof Parsons, this is particularly so because it is private fixed investment that has taken the biggest knock. “It is widely accepted that the private sector is the biggest single creator of jobs in the economy. The survey indicates that public sector investment has, fortunately, been positive, but the modest overall recovery in gross fixed capital formation is battling to maintain momentum.”

He explains that it is mainly the levels of policy uncertainty and weak confidence that have persuaded firms to delay or postpone key investment plans.

“The message of the Nedbank survey is therefore that the sharp drop in new investment plans suggests that the downside risks to the growth outlook in 2024 and beyond may be greater than anticipated previously.”

Prof Parsons says the overarching remedy is to ensure both that the energy challenge is more adequately addressed, and that the implementation of essential structural reforms is expedited. These steps can reduce policy uncertainty and boost confidence.