President Jacob Zuma spoke in glowing terms about R60 billion worth of projects rolled out in the 2013/2014 financial year, indicating our country remains a dynamic investment destination.
Slashed in two
But figures from Nedbank Capital’s expenditure project don’t support this, as investment in infrastructure for 2014 halved.
A total of 65 new projects were approved worth R95 billion in 2014, 50% down from the previous year’s 85 projects worth R187.9 billion.
The massive decline in the value is the sharpest since 2004 and the number of projects is the smallest since 2010. The private sector dominated, accounting for 77% of total spend.
The decline in infrastructure capex was due to weak domestic economic activity, demand conditions and cross-sector strikes which dented business confidence, Nedbank economist Johannes Khoza said.
The value of capex has more weight, as this is more indicative of confidence by investors in the economy than the actual number of projects approved.
Investors are also concerned about the high cost of legislation compliance, the spate of power outages by Eskom and the contentious land expropriation debate, Nedbank said.
The transport, storage and communication sector showed the highest value of capital expenditure, climbing to R46.4 billion from R40.4 billion and boasting eight projects.
The energy, gas and water sector was the laggard with only four projects and capital expenditure declining to R821 million (the lowest since 2008).
The decline is lower than 2013’s capital expenditure of R42.6 billion and 19 projects.
South Africa’s fixed investments as a whole are pegged at 19% of GDP – which is low – and two-thirds of that is generated by the private sector, Investment Solutions chief strategist Chris Hart said.
And world cup stadia remain white elephants, sucking in capital rather than creating more.
“The cost overrun of these infrastructures is the biggest impediment. We have to draw debt and resources in other parts of the economy to maintain these infrastructures,” Hart said.
The NDP sets a GDP growth target of 5.5%. South Africa is far off that GDP growth target, as the National Treasury expects economic growth to reach 1.4% in 2014 and 2.3% in 2015.
Need to double up
Chief Economist at Stanlib Kevin Lings said a 2% growth rate is too low to inspire private sector investment.
“If we were growing at 4%, then this would inspire investors to build more capacity in the country,” Lings said.
The public sector has to play a bigger role in committing capital to projects, in order to motivate the private sector to follow suit, Lings said.
“Many projects have been shelved. Where the private sector has invested has been in the rest of Africa. Capex has been directed outside of South Africa,” Lings added.