Now all eyes on Ramaphosa's Investment Summit as skeptics raise red flags | Fin24
 
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Now all eyes on Ramaphosa's Investment Summit as skeptics raise red flags

Oct 11 2018 17:54
Sibongile Khumalo

With SA's economic progress on an overall decline over the past decade, the upcoming Investment Summit holds significant hopes for a country in deep economic crisis - but, say skeptics, it will not be easy turning things around.

Hot on the heels of the recent Jobs Summit, the Investment Summit - announced by President Cyril Ramaphosa shortly after his appointment in February - is aimed at stimulating growth and providing solutions to unemployment.

The Summit is expected to take place in under two weeks.

However, allegations of looting at key public institutions – as heard at the Zondo Commission into State Capture – and uncertainty over land rights are likely to put a damper on what has been described as a key part of Ramaphosa's $100bn investment drive, say analysts.

According to Lumkile Mondi, Senior Lecturer at the Wits School of Economic & Business Sciences, selling South Africa to foreign investors will be a challenging task. 

All the wrong partnerships?

"The challenge that we are facing as a country is that we are selling a product that is not an easy sell.

"The damage that has been done to our public institutions does not make it easy for us to appeal to investors," said Mondi.

"What is going to happen is that we are likely to attract the interest of countries that have questionable records of human rights, such as Saudi Arabia and China, who are hungry for partners."

China, which is part of BRICS, and one of the country’s leading trading partners, in July committed to pump $14.7bn into SA's economy, and the China Development Bank extended a loan to troubled Eskom, while Transnet also got funding from the Industrial and Commercial Bank of China.

The commitments were a major shot in the arm for Ramaphosa's investment plan, but not enough to quieten skeptics.

"This summit is likely not to live up to the expectations… Ramaphosa needs to demonstrate that he has systems in place to curb the erosion of trust that has led to a decline of investor confidence," said Mondi.

"The issue of land expropriation is going to be one of the stumbling blocks."

The country’s total fixed investment is currently at just over 19% of GDP, down from 24% in 2008, according to a statement presented by Ramaphosa.

Foreign direct investment declined from around R76bn in 2008 to just R17.6bn in 2017. The National Development Plan plans to shore up the figures to at least 30% of GDP by 2030.

Enable small businesses

According to Arthur Kamp, Investment Economist at Sanlam, South Africa is not a favoured destination for fixed investment spending.

"This has been driven by low business confidence and regulatory uncertainty and has resulted in slow growth, along with poor growth in employment," said Kamp.

Kamp believes that boosting growth lies in deregulating investment constraints and red tape hindering small business development and entrepreneurial innovation – a critical element of job creation.

"The focus should therefore not be on big investment projects alone – although in infrastructure they are needed – but rather on creating an enabling environment for small firms," he said. "Portfolio investors have been prepared to invest in our capital markets, in part in search of the higher yield paid on our government bonds," he added.

Government hopes to generate at least $100bn, or about R1.2trn in new investments over the next five years.

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sanlam  |  wits  |  investment summit
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