Mboweni: Private sector cannot be forced to invest in SA

Capital investments estimated to have declined 18.4% in 2020.
Government’s role is to ensure adequate ‘enabling conditions’ to attract investment, says Mboweni. Image: Supplied

Finance Minister Tito Mboweni says the country will likely see an increase in investments from the private sector once macroeconomic conditions improve. 

The outbreak of the coronavirus has exacerbated the financial pressures of the government and it expects the deficit to increase in the current 2020/21 fiscal year to 14% of GDP, up from 5.9% of GDP in 2019/20. The deficit is expected to narrow down to 6.3% of GDP by 2023/24. 

“Debt is now expected to stabilise at 88.9% of GDP in 2025/26. Over time, debt stabilisation will reduce borrowing costs and the cost of capital, attracting investment that can support the economy,” Dondo Mogajane, director-general of National Treasury notes in the foreword of the 2021 Budget Review document.

Read:
‘We owe a lot of people a lot of money’ – Mboweni
Mboweni is optimistic

Treasury projects real economic growth of 3.3% in 2021, from a low base of -7.2% in 2020. Growth is forecast to moderate to 2.2% in 2022.

While fielding questions from members of parliament on Tuesday regarding the country’s 2021 budget, Mboweni said the government cannot force the private sector to invest in the country but is rather responsible for ensuring that there are adequate “enabling conditions” for private actors to invest.

This is as the country’s gross fixed capital formation (GFCF), a measure of total capital investments in the economy, is estimated to be -18.4% in 2020, according to Treasury’s budget review.

SA’s macroeconomic performance and projections

Source: National Treasury

In the second quarter of 2020, GFCF contracted by 59.8%, coinciding with the hard lockdown when there was limited economic activity and movement. By the third quarter GFCF rebounded by 26.5% as lockdown restrictions were eased.

The average level of real GFCF was 17.8% lower in the first three quarters of 2020 than in the corresponding period in 2019.

Persistent problems

The decline in investments is expected to continue in the medium term due to “persistent electricity interruptions, low confidence and low capital spending from public corporations,” according to Treasury.

“While state-owned companies have attributed recent contractions in investment to Covid-19-related restrictions in the construction sector, longstanding project delays and credit rating downgrades will significantly slow their capital expenditure programmes.”

The GFCF is expected to rebound to 3.9% in 2022 and 2023 due to expected improvement in investor confidence, energy investments and the implementation of outstanding policy initiatives. 

Growth environment

Mboweni referred MPs to the Goldman Sachs Growth Environment Scores (GES), which measure a country’s ability to achieve their growth potential. The GES consists of 13 categories which are grouped into five broad components, including: macroeconomic stability, macroeconomic conditions, technological capabilities, political conditions and human capital.

“Before we can blame the private sector for not investing in the country we must check whether [the] growth environment scores are sufficiently there,” said Mboweni. 

He added that the private sector only invests “where it sees an opportunity” and where there is policy certainty.

“If there is an uncertain policy environment then the private sector will not invest,” he said.

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Perhaps a rethink on ” confiscation without compensation ” ( theft covered by law ) might be a start ?

I agree. And the BEE matter can also be pondered upon. To name but a few.

The real GDP forecast perfectly offsets the 7.2% decline in 2020. Is this a joke?

To list the author’s concerns regarding electricity supply I would add crumbling infrastructure, increasing attacks on logistic service providers – which we have become increasingly reliant on, financial immigration and not to mention the 34% unemployment rate(or rather 24 million of the 40 million working age people not in some form of employment).

How then do we arrive at GDP growth of 3%? You don’t even have to think that hard about it – look at the numbers for 2017 through 2019. LOL

Other assumptions that bear examination: Debt to GDP will stabilize at 89% (last year I recall the estimate was approx 77% if I remember correctly)! Just incredible. What have taxpayers observed that would lend credence to this assumption?

The headline is click-bait to promote the author.

Government prefers a model where someone else does all the work and establishes and runs the business.

Then, “progressive” policies force the business to gradually shed its equity and skills, often in favour of connected cronies.

EWC is the sword that will always be present. Since transformation is in the public interest the owner is faced with a stark choice: either give up the bulk of what you worked for “willingly” or lose everything “in the public interest”.

It is the perfect parasitic economic strategy.

Yes it is the perfect strategy and will enable the transfer of the current current businesses but like in Zimbabwe it guarantees that no one ever invests in new business opportunities and eventually the economy dies.

The phrase of a “Lone fart in a windstorm” comes to mind.

Don’t despair, he told JuJu these wise words last time they had tea.

Mboweni is so right and wise when he says: “the government cannot force the private sector to invest in the country but is rather responsible for ensuring that there are adequate “enabling conditions” for private actors to invest.”

Just like you can’t force a plant to grow – all you can do is give it the ideal climate and it grows on its own.

There are a number of articles placing faith in the finance minister to “hold firm”.

How short our memories are. Whether Mboweni is right or wrong is irrelevant.

At crunch times he has been outvoted by collective and it will happen again.

No, that’s not it. The private sector can’t be forced to invest and they won’t for obvious reasons

Therefore the state will need to do the job instead… So the state bank, more SOE’S, are necessary.

Get the drift?

Some common sense comments from the minister, however he’s a rather lone voice. The collective mentality of the ANC will & has for 2decades trample these words. The numbers are frightful for those who comprehend.

The socialist ANC cannot force the private sector to invest, but they can prevent them from investing. They force businesses to go offshore.

The populist and shortsighted economic policies of the ANC incentivize local businesses to disinvest from SA and to create jobs and pay taxes overseas.

The ANC dogma is an effective transfer mechanism that exports the tax base and job opportunities to countries where property rights are respected.

Luthuli House is in the import/export business. They export employment opportunities and economic growth to our international competitors and they import unemployment and social unrest from those countries.

They create jobs overseas and create social unrest and economic decay locally. This is treason.

Agree fully. One example I personally know of. A Spanish fishing company wanted to open up in Cape Town. When they were told that they had to meet BEE requirements they were perplexed. Why do we need ” black” partners they asked? Its the law was the reply. Guess what? No, you know the answer – they did not open in S A .

The way the ANC treats companies in SA, regulations, excessive tax, lockdowns, and tax some more, BBEEE(no skill required), corruption without consequences (especially when you politically connected), why would he think investment will increase?
No wonder South Africa is dropping down the rankings against other African countries at a scary pace.
Tito was good for the reserve bank, but not finance minister, he also used the old race card to deflect responsibility from him.

The SA President is unable to get the billions of rands invested, which every year grows into a larger pile of promises (referring to the investor conference)? Throw more press at this honey trap? Pacifying the voters and polishing his ego, et al.
Why does our leaders even give credence to this farce of a kakistocracy? Created red carpet events, are better PR than supporting somebody’s ideology. Why appear on the same stage?
It is a known fact that the press won’t get the economy going, unless of course, if they start daily track reporting (cause and action) on the progress made to implementation and expose the bottlenecks? That is called, making news. Give facts, the people will decide to boycott/shun this farce.
Everybody can surf when the economic surf is up!
Until then, do not expect different outcomes by repeating the same action. Even Einstein called that insanity.

Well done, Thando.
The Minister speaks of “enabling conditions”. South Africa needs to promote itself as a land of opportunity for investors (as well as a Wonderful place to visit).
IT SHOULD HIRE THE SERVICES OF A TOP CLASS ADVERTISING AND PROMOTIONAL ORGANISATION.

End of comments.

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