NEWS: Govt must act to stop slump in SA infrastructure investment, says Absa.

South Africa’s government must make good on its promises to deliver structural and economic reforms aimed at improving infrastructure and bolstering business conditions to revive capital expenditure, according to a report by Absa.

Gross domestic fixed investment in South Africa has "declined dramatically" to about 14% of gross domestic product at the end of the second quarter from its peak of 22.7% of GDP in the final three months of 2008, Absa economists Peter Worthington, Miyelani Maluleke and Sello Sekele, said. The data suggest investment spending is largely directed toward maintenance instead of growing productive capacity, according to the Johannesburg-based lender.

 

The decline is partly due to weak business sentiment that’s hamstrung private-sector investments, the lender said. Since 2018, spending by private firms has accounted for 71% of all capital expenditure, with government and state-owned company expenditure making up 18% and 11% respectively, Absa’s research shows.

A decrease in public spending on infrastructure, which fell by an annual average of 5.8% from 2015 through 2021, also contributed to the drag, it said. While the National Treasury, in February, outlined plans to boost spending on infrastructure, businesses are unlikely to follow until conditions improve, Absa said.   

“Because government’s record on delivery of its reform promises is poor, we believe that business will largely wait” until it’s confident that a better operating environment is imminent before committing substantial capital for expansion, the authors said. 

South Africa needs to “substantially address” its infrastructure constraints, including on energy, ports, rail and water, improve governance particularly among municipalities and tackle the deterioration in safety and security, the lender said. Its progress on reforms is likely to be patchy and slow, Absa said. 

Source: News24