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JIMMY MOYAHA: As remarked by David Shapiro, Investec has unveiled its Fixed Investment Outlook. This document underscores the vital infrastructure emphasis needed for South Africa’s development, particularly in the context of 2025 and beyond.
I’m thrilled to have Investec’s chief economist, Annabel Bishop, joining us to delve into this and its broader implications. Good evening, Annabel. It’s great to have you with us. Wishing you a successful new year.
The year is beginning on a constructive note regarding research and data. While these discussions are not new, the current focus is squarely on fixed investment. What drives this emphasis this year?
ANNABEL BISHOP: Hi, and Happy New Year to you as well. At this juncture in South Africa, we cannot allow the country to lag in economic growth any longer. This situation severely impacts employment, especially with regard to fixed investment.
The challenges are well-documented. Numerous assessments have pinpointed the issues hindering fixed investment, encompassing infrastructure, economic stagnation, and unemployment.
Though it has taken time, it’s crucial that we initiate efforts to repair, maintain, and particularly enhance our infrastructure delivery in South Africa.
JIMMY MOYAHA: When we talk about infrastructure, we must consider both capital and social infrastructure. Urgent matters like the water scarcity crisis in South Africa deserve immediate action as part of necessary social spending. While these aspects are essential, how do we strike a balance with the need for capital infrastructure to encourage growth?
ANNABEL BISHOP: That is central to our conversation. All types of infrastructure are essential.
As you pointed out, South Africa is a water-scarce country, receiving only half the global average rainfall. Given the high evaporation rates and limited potential for developing additional water resources, managing water delivery infrastructures effectively is critical. Currently, three-quarters of our exploitable surface water resources are utilized.
Beyond just supplying water, we must address delivery mechanisms like pipelines and overall infrastructure. Unfortunately, our national bulk infrastructure has significantly deteriorated.
Read: Johannesburg requires R221bn for infrastructure repairs
Moreover, Transnet faces critical delays at ports, which is alarming, particularly as we are experiencing a steady decline in freight levels. The rail sector had a brief positive phase last year, but a concerning downward trend in freight transportation has been observed since 2022.
Listen/read: Transnet costs the SA economy R1bn every day
Effective freight transport is crucial for South Africa, making rail the more economical choice, especially when considering maintenance costs for roads and highways.
To boost productivity and attain a GDP growth rate surpassing 5%, which would enhance employment and reduce unemployment, we must fortify our infrastructure.
The current infrastructure is simply not adequate to support the present level of activity.
JIMMY MOYAHA: Regarding that 5% growth target, it seems feasible if we can properly align our strategies.
In the context of the discussed infrastructure plans, numerous government agencies have announced forthcoming infrastructure projects. How do we ensure the maintenance of current infrastructure to meet existing demand, while also investing in new initiatives to foster growth?
ANNABEL BISHOP: That is a crucial aspect. We need to preserve and enhance the capacity of existing infrastructure while concurrently launching new projects to fuel swift economic growth.
The presidency has indicated that had Transnet been fully operational, South Africa could have achieved 4% economic growth last year and in 2023 instead of nearly 1% growth.
For example, take a mining company that produces minerals and metals. If they can’t export their goods, they may have to cut back production, which could lead to staff layoffs due to stockpiling issues.
Reflecting on recent developments, we’ve observed difficulties with companies like ArcelorMittal.
Read: ArcelorMittal SA experiences a 27% drop following plant closures
While it’s reassuring that we appear to be overcoming the electricity crisis, as the presidency noted, caution remains as they warn of potential future load-shedding occurrences.
Transnet’s issues are different and not as straightforward to resolve as those faced by Eskom.
Eskom has benefited from the expertise of original equipment manufacturers to restore power stations to full capacity. In contrast, Transnet is dealing with extensive railway networks that suffer from infrastructure vandalism and theft.
One possible solution is to ban scrap metal exports to discourage criminals from dismantling and selling critical infrastructure components.
Read:
Navigating a long-distance freight train ‘blind’
Estimate suggests R80bn and a decade to repair Transnet’s core rail network
It’s vital for South Africa’s infrastructure to focus on restructuring Transnet’s operations into specialized segments and improving regulatory clarity to reassure private-sector investors about returns and costs.
Nonetheless, the current rail infrastructure must also be evaluated for its capacity to accommodate new operators and services.
In summary, addressing crime that dismantles essential infrastructure, alongside establishing regulatory certainty and encouraging private sector investment, is critical.
JIMMY MOYAHA: From a private sector viewpoint, what approaches can we take to draw in investment?
For an extended period, the communication has been that South Africa is the premier destination for foreign investment, emphasizing the necessity for capital influx into infrastructure projects.
How can we improve our appeal to capital markets for these initiatives, especially considering the associated costs?
ANNABEL BISHOP: Ultimately, the fundamental considerations are risk and return.
What risks accompany investments, and what returns can investors expect? Greater clarity regarding these factors will enhance investment from both foreign and domestic sources in South Africa’s infrastructure.
Regulatory clarity is essential.
Private investors must have a clear understanding of the environment and how they can operate successfully.
The uncertainties surrounding the railway system, for instance, mean that if there’s a significant increase in rolling stock and transport activities, operators require assurances regarding rail capacity and avoidance of delays at ports, which is currently a major issue affecting profitability.
Therefore, addressing port challenges is essential to reduce congestion and enable smoother operations, potentially requiring additional infrastructure development.
This scenario involves numerous interlinked factors. It’s a complex situation, and we should anticipate challenges surrounding Transnet to persist longer than expected.
Optimistically, we do foresee economic growth for this year.
While there’s no hint of despair, we expect a GDP growth of 1.8% compared to last year’s 0.8%.
This progress will arise from improvements to South Africa’s infrastructure, ranging from water systems to capital investments in rail and ports.
It’s equally important to continue focusing on ongoing efforts in electricity production and distribution, notably by expanding transmission networks across South Africa.
JIMMY MOYAHA: While the outlook isn’t entirely negative, it’s encouraging to hear expectations for a positive year ahead. The anticipated growth of 1.8% remains below our potential but is achievable if we collaborate effectively to drive progress.
Thank you, Annabel, for sharing your valuable insights. That was Annabel Bishop, chief economist at Investec, discussing the infrastructure and fixed investment outlook, which could act as a catalyst for sustainable economic growth in South Africa.
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