Business Leadership South Africa (BLSA) on Monday congratulated the Presidency on a successful investment conference last week.
“The fifth event was well attended and there were some powerful sessions with both business and the public sector regarding the obstacles and opportunities for greater investment. It made clear the Presidency’s commitment to a conducive environment for business to invest, and there was a positive sentiment about the government’s efforts to achieve that. I applaud the effort,” BLSA CEO Busi Mavuso said in her weekly newsletter.
The conference concludes the five-year target that the president set in 2018 of raising R1.2 trillion in investments.
“The tally was at R1.5 trillion by the end of the conference, so that was well achieved. The president has now signalled a new target for the next five years of R2 trillion, Mavuso said.
“That is all good and well, but I want to suggest to the Presidency that it should be complemented by other targets. Investment is not just good in itself. It is good for what it creates, including economic activity and to enable citizens to live better lives.
“Investment drives economic growth because it increases the capacity of the economy. Put simply, the more roads, ports, railways, factories, energy facilities and other economic infrastructure, the more the economy can produce; generating taxable earnings that can make the country better off.
“While the investment conference’s R1.5 trillion is impressive, it has happened during five years of the weakest economic growth we’ve seen for decades,” Mavuso pointed out.
“One of the main reasons is crumbling infrastructure, most obviously in our electricity system, but also in logistics and local government services like water provision. And the problem is that much of the investment commitments are effectively replacement investments – it is companies building their own electricity plants, because they can no longer rely on Eskom to produce it. That does not expand the capacity of the economy – it merely protects the existing capacity,” she said.
Mavuso went on to say that it is still a good thing. The many new electricity plants now being built will resolve load shedding within the next few years.
“That will set the scene for renewed business confidence that will hopefully allow for investment that achieves what we really want: economic growth. When businesses are feeling confident about the future, they invest. They must believe there will be customers to sell to for many years for the investments they are considering now.
“And it is clear that some of the electricity investment is going beyond merely replacing Eskom supply: there are some large-scale industrial activities that are now feasible thanks to the regulatory space that companies have to build their own electricity generation,” Mavuso said.
“For the next five-year phase of the investment conference, we should measure success by how much of the investment that is pledged actually expands economic activity. And we should look for it not just in pledges, but in the overall macro figures for gross fixed-capital formation.
“ I have no doubt that pledges do add at the margin to the investment happening, but it is really only when investment trends pick up at the macro-level that we can be confident something good is happening in the economy.
“We have in fact seen some recent positive momentum in gross fixed-capital formation, with the seven-year downwards trend to 2021 having bounced upwards in the last year-and-a-half (though it remains at about half the targeted 30% of GDP),” she said.
“That is in part due to the electricity and related investment that is under way. It is a number we must watch more closely. If the R2 trillion target is achieved from investment that expands economic capacity in the form of new mines, new factories, new call centres, new fibre-optic cables, backed by a robust investment programme by the public sector itself in new roads, rail, ports and electricity distribution, that would be a great achievement.
“That is the kind of investment that delivers what we ultimately want: jobs and better lives for all,” the BLSA CEO said.
“Business is eager to work with the government on the many policy interventions needed that would help make that a reality,” Mavuso said.
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