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SA needs investment to drive growth - Sarb

Oct 04 2016 06:24
Lameez Omarjee

Pretoria – Raising investment could raise the potential growth rate of the economy, according to the Monetary Policy Review (MPR).

The second edition of the MPR for 2016 was issued by the South African Reserve Bank (Sarb) on Monday evening, at the Monetary Policy Forum held in Pretoria. At its most recent Monetary Policy Committee (MPC) meeting, the Sarb had revised South Africa’s growth rate to 0.4% for 2016, 1.2% for 2017 and 1.6% in 2018.

READ: Sarb revises growth forecast to 0.4%

“These are lacklustre figures,” said Chris Loewald, head of policy development and research. The improved growth outcome of 3.3% in the second quarter of 2016 was mainly due to net export outcomes.

However, net exports and investments are volatile, he explained. Exchange rate depreciation should help export growth, but outcomes have been volatile and not consistent, he said. In the past growth was attributed to household consumption. Currently interest rates are low, which can support household consumption, but there are other factors weighing against it.

Weaker investment

Investment has generally weakened and poor growth is a result of poor investment growth rates, said Loewald. Private sector investments have come down particularly.

Among the reasons for low investment was low business confidence and political uncertainty, according to the review. For the second quarter of 2016, the Rand Merchant Bank, Bureau of Economic Research (RMB/BER) showed that the business confidence index reached its lowest point since the Global Financial Crisis (GFC). It remains at low levels despite rebounding in the third quarter.

According to the Commission on Growth and Development, for an emerging market to achieve sustained growth it must invest in 25% of GDP. South Africa has not achieved this level in the past 30 years.

In the 2000s, investment peaked at 23% of GDP. After the GFC, investment started declining. Currently total investment is around 20% of GDP, it is expected to remain at these levels for the next three years.

South Africa’s investment at 20% of GDP is low compared to the weighted average of emerging markets, excluding China, at 24% of GDP. Investment levels in China is 40% of GDP.

South Africa’s current level of investment is above the average of 17% between 1994 and 2015.

Investment players

The private sector mainly contributed to two-thirds of investment in the 2000s and the remaining third was made up by government and public corporations. During the “boom” investment was largely driven by manufacturing and mining sectors, explained Loewald. During the GFC, private investment declined sharply.

Between 2011 and 2013, total real investment growth declined by 5% per year, compared to the 9.4% between 2000 and 2008. However, the private sector made up three quarters of investment during 2011 and 2013.

Since 2013, private sector investment contracted for seven of the past 10 quarters. So the little investment growth achieved in South Africa came from the public sector, from government and minor contributions from state-owned enterprises, stated the review.

Contribution from private investment is expected to be negative till mid-2017. Marginally positive growth is expected from government and public entities.

However, the electricity sector has managed to draw in investment. Through government’s renewable energy independent power producer programme (REIPPP), investments from the private sector have seen an uptick. 

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