Investment slips amid jobs blow

29 August 2021 - 05:00 By HILARY JOFFE

SA's economy is unlikely to grow and create jobs without more investment - yet in a week in which official statistics showed the unemployment rate reaching a record high, updated economic data also showed that SA's private investment rate has fallen to its lowest level in at least four decades.Fewer than 38 out of every 100 South Africans of working age actually had a job in the second quarter of this year, Stats SA reported. The unemployment rate rose to an unprecedented 34.4% as the economy reverted to shedding jobs in the formal sector, following gains in the previous three quarters as the economy bounced back from last year's hard lockdown.At the same time, revisions to the GDP statistics found that gross fixed capital formation - which measures investment spending on infrastructure and fixed assets such as new factories, mines or malls - has proved to be lower than earlier estimated, falling by two percentage points to just 14% of GDP at the end of 2020, at which level it is less than half the 30% target in SA's National Development Plan.The shock stats have sharpened the focus on the need for SA to speed up reforms to boost investment and job creation and drive higher rates of growth. They have also drawn fresh attention to the need for the government to rein in its debt, so as to free up capital in the economy for more productive investment.They come ahead of the publication next week of growth figures for the second quarter of this year, while economists expect a contraction in the third quarter as a result of July's "looting shock". BER economist Hugo Pienaar said the looting shock had erased the gains of a better-than-expected first half of this year, so the BER has kept its growth forecast for 2021 at 4% rather than increasing it as it had planned to do in June, before the unrest. Bloomberg reports that Treasury officials told parliament this week that the unrest had likely shaved 0.7 to 0.9 percentage points off this year's growth rate. Stats SA this week revised last year's GDP outcome to a contraction of minus 6.4%, from the previous estimate of minus 7%, with fixed investment declining by almost 18% in real terms.The economy has proved to be more resilient than many economists had expected during the depths of last year's Covid crisis, and recent weeks have also seen encouraging signs of progress on reforms to enable private investment in SA's electricity supply and ports. However, most economists still expect growth to subside to 2% or less from next year, after this year's bounce-back, given the slow pace of reform as well as concerns that the commodities boom may be coming off its peak. The decline in investment will itself weigh on growth in years to come: Reserve Bank governor Kuben Naidoo noted at a panel hosted by Ninety One this week that private sector fixed investment is an important leading indicator of growth, affecting the economy's potential to grow. The lack of private sector fixed investment constrains the "speed limit" of economic growth and could result in inflation in future.Pienaar pointed out that employment in the second quarter was still down by 1.5-million jobs compared to the fourth quarter of 2019. The construction sector has seen a very poor recovery, mirrored in a poor recovery in fixed investment, which is likely to contract again this year after last year's large decline. Investment is expected to pick up again only from 2022, thanks to reforms, particularly in bringing new green energy onto the power grid, he said.The department of mineral resources & energy (DMRE), which two weeks ago gazetted the legislative amendment needed to allow companies to generate up to 100MW of electricity without a licence, last week issued a second gazette making it clear that companies could generate for more than one customer. This is expected to attract huge investment in the electricity sector, adding to the government's own renewable energy procurement programme. Speaking at a BER conference this week, DMRE official Thabo Mokoena confirmed that bids for round five of the renewable energy programme had closed on August 16, with round six set to go out to tender in September. Mokoena said the department is engaging with the National Energy Regulator of SA to ensure it cuts processing times to register new private generation projects by 50%, in line with the time frames set out by President Cyril Ramaphosa.The government and Transnet also recently announced plans to bring private sector participation into SA's ailing ports. Treasury deputy director-general Duncan Pieterse said most of the growth impact of structural reforms will come from putting enabling conditions in place to attract investment in sectors such as energy. Dealing with the constraints in these sectors would affect growth directly, as well as indirectly through boosting business confidence. Broadband spectrum is the next focus area for the priority reforms targeted by the joint presidency/Treasury task team, Operation Vulindlela, which include electricity, transport and water as well as skills.SA's commercial banks have bought sizeable quantities of government bonds since early last year. That has raised questions about whether the government's borrowing is increasingly "crowding out" the private sector, consuming capital that could otherwise be going into new private fixed investment as the banking system takes private deposits to fund public sector borrowing.Naidoo said banks played a very positive role in supporting SA's economy through last year's crisis, which at its peak in July last year saw one in eight loans - involving a total of almost R700bn - under some sort of payment holiday or restructuring provided by the banks. At this stage it is still understandable and rational for banks to be buying government bonds, given the low demand for corporate credit, but Naidoo said if that is still the case in 18-24 months, the Reserve Bank does have tools to limit the banks' bond purchases.

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