Fixed investment as a percentage of GDP in South Africa is at a lower level now than it was five years ago, says Mike Schüssler of Economists.co.za.
He describes this as South Africa’s biggest challenge, not least of all because it means fewer jobs are being created.
For the country to become a normal emerging market it needs about R3 trillion in direct investments, says Schüssler.
‘Normal’ would be an emerging market with a positive net cross-border direct-investment position. South Africa however has a negative position.
And this, as the graph below shows, puts it at the bottom of a list of the world’s largest emerging markets.
Net cross-border direct investment positions for the 17 largest emerging markets
Schüssler says one of the reasons South Africa is at the bottom of this list is because its investment community continues to invest more offshore than in its own country. And this means fixed investments will continue to decline.
“We invest more in other countries than they invest in us,” says Schüssler. “It is worse than when we had sanctions.”
He adds that even in the first quarter of 2019, South Africa saw a decline in fixed investments.
As the graph above shows, there was a sharp decline in investment just after 2010 – it dropped 31.9%.
The graph shows that South Africans prefer to invest elsewhere rather than in their own country, while other countries invest here, says Schüssler.
He points out that this leads to a negative contribution to job creation.
Statistics SA, in its Quarterly Labour Force Survey report for the third quarter of 2019, reported that there are 6.7 million unemployed people in South Africa.
Schüssler says the reason for the low levels of fixed investment and foreign direct investment in SA is simple: policy uncertainty and red tape. This affects investor confidence.
Schüssler says that until the government gets these issues right, they will continue to have a negative impact on economic growth as well as gross capital formation (formally known as gross domestic investment).
He says clarity and action is required on the following:
- The land issue (expropriation without compensation)
- Property rights in general
- The cutting of unnecessary red tape
- Black Economic Empowerment
- The electricity and water supply crises.
The Eskom debacle and the water security situation have seen investor confidence drop. “No one is going to invest in SA in a big way unless we can get the electricity supply situation sorted,” says Schüssler.
He says SA needs more than the R363 billion in investment pledges made at the SA Investment Summit last week if it is to close the gap created in the past five years.
He singles out telecommunications giant MTN, which pledged to make an investment of R50 billion over five years at the summit.
“I think that is an amount MTN would have invested anyway, because it is going to have to upgrade its towers,” says Schüssler. “Telecommunications companies do that all the time.”
He calls on the South African government to pull up its socks and deal with the underlying issues that are affecting the country’s ability to attract investment.