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South Africa will be hard-pressed to realize its ambitions of attracting R1 trillion ($ 61 billion) of private investment in infrastructure, if its previous record is anything to follow.
The investment campaign began two years ago and is a key component of an economic plan unveiled by President Cyril Ramaphosa last week that aims to revive the coronavirus-hit economy.
The government is expected to spend R100 billion on infrastructure, an allocation expected to galvanize 10 times more private investment in four years.
However, data from the International Monetary Fund shows that investment as a percentage of South Africa’s gross domestic product has been in decline since 2016 and the Washington-based lender forecasts that the share will hit a record low of 13% this year.
That compares with 25.4% in Nigeria and 21.5% in Angola.
“Capital expenditure replacement rates remain well below what is required to stimulate a significant recovery in growth through the fixed investment channel,” said Jeffrey Schultz, economist at BNP Paribas South Africa.
The pandemic has made it even more difficult to achieve change, with companies like Anheuser-Busch InBev SA’s unit, South African Breweries, and glassmaker Consol Holdings Ltd, sidelining their expansion plans.
Most SOEs also have liquidity problems and are not in a position to embark on a wave of massive investments.
“It’s going to be an uphill battle to kick start the investment momentum,” Nicky Weimar, chief economist at Nedbank Group Ltd, said by phone Friday.
“The reality in the case of South Africa is that the government has no track record of delivering infrastructure on budget and on time, and the returns on fixed public investment in South Africa are not only low but often negative.”
Ramaphosa hosted conferences in 2018 and 2019 in a bid to increase investment that secured R664 billion in spending commitments from private and state companies, and data collected by his office shows that about a quarter of the money has already been spent.
At the end of June this year, 276 potential investments worth R2.3 trillion had been identified.
The following month, 62 priority projects worth R340 billion were published, a process that will speed up licensing and other regulatory processes, with the construction of several housing and highway developments already underway, according to the presidency.
The South African Savings and Investment Association, an industry body of fund managers and insurers, has said that its members are willing to commit funds to viable projects and sees the government’s new centralized approach to development will speed up the process.
While the government may describe the projects as “out of the box,” that doesn’t necessarily mean investment flows are imminent, but rather requests for proposals and information are being issued, Schultz said.
That means there could be delays before the expense is reflected in the data, he said.
Weimar is skeptical that state or private companies have sufficient capacity to develop projects on the scale envisioned by the government, because many skilled personnel have emigrated due to a shortage of local projects over the last decade.
“The construction sector is a shadow of what it used to be,” he said.
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