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INVESTORS MAY BE RELUCTANT TO INVEST IN SA

Given Majola | 6 March 2023

South Africa’s Finance Minister, Enoch Godongwana. Picture: Phando Jikelo/African News Agency (ANA) Archives

Political instability, frequent changes such as South Africa’s recent greylisting and the power crisis has created reluctance among potential investors to invest in the country, says Andrew Bizzell, the Chairman of the BEE Chamber.


The consultancy, which provides advice to help deliver improvements in B-BBEE business strategies, monitoring and implementation, and to help businesses to grow their B-BBEE score performance, said that currently there appeared a willingness to invest, but they (potential investors) needed the surety and security of a stable economy, thus some businesses may hold back.


Bizzell said there were those who were optimistic, but there were also the boards of companies that were waiting to see how it rides out.


He said there was “investment noise, but a wait and see approach.”


“Typically, the recovery post-Covid happened fast for some, slow for others, so we have seen some businesses are willing to invest if they are in a cash recovery position. Others have been holding back, cutting costs and waiting. Some of these had to keep investing in development no matter if they were under economic pressure or not,” Bizzell said.


Andrew Donaldson, senior research associate at the Southern Africa Labour and Development Research Unit of the University of Cape Town concurred that political instability around key policy issues contributes to negativity in the business investment environment.


“It is difficult to quantify the impact, but South Africa’s economic growth is clearly lagging the rest of the world and several analysts expect there will be a recession (negative growth) this year,” Donaldson said.


He said Minister of Finance Enoch Godongwana recently tabled a budget that assisted in stabilising the public finances while resolving Eskom’s debt problem.


“But an improved business climate requires more than this - the president (Cyril Ramaphosa) needs to give assurance that relations with our international investment and trade partners remain sound and that economic recovery will be prioritised.”


Hugo Pienaar, chief economist at the Bureau for Economic Research at Stellenbosch University, said that when there was even a perception of political instability, or constraints on economic growth and challenges in the business environment, investments will be inhibited, especially those of new capacity.


“If the costs of doing business are high, for example, a company needs to spend more money on securing its assets and ensuring employees are safe, needs to spend extra costs for power and struggles with municipal services, all these constraints contribute to weaker economic growth,” Pienaar said.


He said potential investors would then feel that there is little incentive to invest more.


Pienaar said this could mean that demand for their goods and services is depressed and they would have to spend more just to maintain their existing operations.


Chief economist at Old Mutual Investment Johann Els said there was a strong willingness in the private sector to invest in the South African economy, especially the country’s energy sector as there were significant investments in electricity generation.


“The private sector is willing to invest in energy and that will substantially lower risk of load shedding as we get more electricity from the private sector online whether through self generation, imports that Eskom makes from other countries buying up extra power, but also the private sector putting up solar panels on their roofs, etc. There is significantly lesser load shedding risk a year or two from now,” Els said.

He said if there is electricity available two or three years from now, investors who want to make money would still invest since some of these investment projects have long lead times.

“You have to invest now to start producing two or three years from now.”


Els said he, however, thought that there was a confidence crisis in the economy.

“Everybody is very negative with regard to load shedding and seemingly some political inaction. We need to do more, it has taken a long time to get some regulations from the State of Disaster. It is taking longer still to get the new Minister of Electricity. It’s these seemingly inactions or slow action to the crisis that makes consumers and businesses be less confident about the future.”

Els said he thought that there was an opportunity to change that as he thought that gradually the country would have less load shedding. He said the significant private sector investment in energy meant there would gradually be more in other sectors/areas of the economy.


He said the private sector was looking more into the medium term.

“I do not think we have seen lots of policy action that will actually continue to lift medium term growth prospects. We have seen government policies change significantly by embracing the private sector. Not only in energy but other logistical areas like transport, ports etc. There has been lots of action, I think there is lots of action that will change the growth trajectory to more better, stronger and sustainable economic growth. That is what foreign investors want,” Els said.

“However at the moment there is a confidence crisis and for some people it is difficult to see through that. The underlying picture is changing and one of those areas is the fiscal environment with the significant reduction in fiscal risk that will especially help foreign investors to be more positive about the economic outlook of the country. If foreign investors are willing to invest in South Africa, local investors will invest as well. Maybe we do have a confidence crisis in the short term, I do not think it will last. We will gradually see an improvement in electricity supply and that will help. For some people it is difficult to see through the noise but I do think there are a lot of potential positives.”


‘Disclaimer - The views expressed here are not necessarily those of the BEE CHAMBER’.




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