Business Maverick


Department of Wishful Thinking – SA’s 10 reasons to invest against the backdrop of a failing state

Department of Wishful Thinking – SA’s 10 reasons to invest against the backdrop of a failing state
Illustrative image | Source: Adobe Stock

The South African state is struggling to keep the lights on and can hardly provide other public services that a 21st-century economy needs to function properly. ‘Procurement mafias’ are shaking companies down Sopranos-style, corruption remains rife and policy uncertainty reigns. But on Thursday in Sandton, South Africa will try to sell itself as an ‘investment destination’.

Ahead of the fourth South Africa Investment Conference to be held in Sandton on Thursday, the government has launched a brief video on YouTube entitled 10 Reasons to Invest in SA.

Much of the video was clearly made in a parallel universe, one in which blue-light brigades shield ANC heavyweights from the harsh realities of the failing “developmental” state over which they preside. Those big SUVs can just roar over the potholes.  

The first reason pegs South Africa as a “hot emerging market” with a “growing middle class” and “affluent consumer base”. No mention of an unemployment rate that is in effect over 46% or the fact that much of the middle class and “affluent consumer base” is relocating to Perth and other destinations abroad.  

The number two reason is that South Africa is the “most diversified economy” in Africa. That is certainly true on a continent where a significant percentage of the population remains engaged in subsistence agriculture. Compared to, say, Malawi, South Africa’s economy looks pretty diverse. But this overlooks the inconvenient fact that deindustrialisation is ongoing, by the government’s own admission. 

“Over the years, South Africa has experienced significant deindustrialisation. From a high of around 22% of GDP in the late 1980s to the early 1990s, manufacturing now contributes around 12% of GDP,” Finance Minister Enoch Godongwana noted in a speech in September last year. 

Reason number three asserts that South Africa has the “largest presence of multinationals in Africa”. This is almost certainly true but really seems to be grasping for straws.  

Number four touts a “progressive Constitution” and “independent judiciary”. It also says South Africa is ranked the best in Africa for protecting investment. But what about property rights and all the banter about expropriation without compensation? Or mining and construction companies that face shakedowns from “procurement mafias” that seem to act with impunity? 

Reason five is a real corker: “Favourable market access to global markets.”  This is basically flagging South Africa’s various trade agreements. But to have access to global markets, companies need to be able to get their product to such markets. Mining companies, notably in the coal and iron ore sectors, have reported billions in lost revenue because of Transnet’s woes.  

The sixth reason is “abundant natural resources”. This is also demonstrably true – South Africa has the world’s largest-known platinum group metals and manganese deposits and has produced more gold than any other country in history. And with red-hot commodity prices, some mining companies here are almost printing cash. Let the good times roll! 

But also, see above regarding the menacing presence of “procurement mafias”. Or the periodic waves of labour and social unrest that plague mining operations, not to mention the zama zamas (illegal mine workers). And what about reliable and relatively cheap power to keep this power-intensive sector running? Despite an ultrarich geological endowment, South Africa’s share of global mining exploration spending remains under 1% against a stated target of 5%.  

The incoherent and illogical new government Covid-19 regulations are the real state of disaster

Sibanye-Stillwater CEO Neal Froneman recently described South Africa as on the road to state failure. This is the view of a top mining executive in the resources sector. He could probably name 50 reasons not to invest here, which is why Sibanye’s main investment drive at the moment is offshore.  

The sixth reason states that there are “over 110 listed mining companies with operation [sic] in SA”. That would include companies with offshore listings and operations in South Africa. But from 117 in 1994, there are now only 41 mining companies listed on the JSE currently, of which six have no assets in South Africa and seven are suspended from trade, according to data compiled by Paul Miller, director of mining consultancy AmaranthCX.  

And new mining listings on the JSE? Last year there was Anglo’s coal spin-off Thungela, but Assore delisted, for a net total of zero new listings in 2021.  

Number seven points to an advanced financial services and banking sector. This also in many ways still holds true. But then, does anyone recall a company called Steinhoff?  

Number eight is a reason that brings to mind the LOL emoji, repeated several times: “World-class infrastructure and logistics.” Does that include Eskom and Transnet’s decaying rail network? What about Prasa and state hospitals, where staff have been feeding patients out of their own pocket? Or the road and water systems? Service delivery protests don’t occur where there is “world-class infrastructure”.   

Number nine speaks to a “young and trainable labour force”. No mention of a 30% pass rate or a public school system that has utterly failed to produce a skilled and literate labour force. The workforce is young and of course it is trainable. But its potential is being squandered by state failure. 

“Excellent quality of life” rounds it out at number 10. That seems designed to attract skilled foreign workers whose companies might want to locate them here because of South Africa’s chronic skills shortage. But their HR departments will have to navigate the shambolic wreck that is the Department of Home Affairs, which is widely regarded as being incapable of doing anything right. And I mean anything.  

The “excellent quality of life” also applies to only a privileged few in a country that once again has topped the World Bank’s rankings as the most unequal in the world. The July riots last year that killed about 350 people and caused tens of billions of rands in damage suggest that many South Africans don’t enjoy an “excellent quality of life”. Almost half of the adult population depends or relies on pitiful social grants to put food on the table. Others beg at traffic lights. 

As someone who hails from Nova Scotia, this correspondent can attest to the great weather here, and the middle and more affluent classes mostly enjoy an enviable quality of life behind high walls and electric fencing with generators often whirring in the background. They pay extortionate taxes and local rates with little or no return, relying instead on private healthcare, schooling and security. 

The most recent version of the video is dated 9 March 2022. Essentially the same video was making the rounds as far back as 2018. 

Small wonder then that many investors have over the past few years decided that South Africa is not, in fact, a great place to invest their capital in.   

In her latest newsletter, Business Leadership SA CEO Busi Mavuso gets to the point. 

“Reserve Bank figures for gross fixed capital formation in the third quarter for last year at 14.3% of GDP were dismal,” she notes. Gross fixed capital formation is effectively a measurement of investment, and the low rates on this front underscore the fact that even South Africans are not investing in South Africa.  

“We are far from the National Development Plan target of 30% and consistently below the 16.7% of GDP we were at before the pandemic. The declines are broad-based – the public sector has steadily shrunk its investment into the economy over the last five years. The private sector suffered a major decline during the pandemic and has not yet recovered,” Mavuso wrote.  

She pointed out that: “These investment conferences have historically seen private sector companies cajoled into announcing multibillion-rand projects. These are all fine and well, but they do not tell us if these are additive – are we increasing investment flows or merely saying what would have happened anyway?” 

In 2018, President Cyril Ramaphosa, at the first such gabfest, laid out an ambitious target of $100-billion in new investments over the next five years to kick-start an economy stunted by a decade of Jacob Zuma’s looting and mismanagement. The government’s claim is that more than 60% of that has been achieved to date, including pledges and foreign and domestic investment.  

According to updated data compiled by the United Nations Conference on Trade and Development, foreign direct investment (FDI) flows into South Africa in 2020 fell by 39% to $3.1-billion from about $5-billion in 2019, which was a decline from $5.4-billion in 2018. 

So FDI flows – which is not the only measurement of investment but is the most important one – according to UN estimates accounted for about 13.5% of the target by the end of 2020.  

South Africa as an investment destination is clearly a very hard sell at the moment. It’s going to take more than a new promotional video to change that state of affairs. DM/BM 


Comments - Please in order to comment.

  • M P says:

    Ed – think you need to have a look at Nic Haralambous’s article on Razors. Specifically Munger’s Razor – being able to argue both sides of the argument. This type of South Africa bashing is not conducive to building our society. Yes, there are issues but how about proposing solutions for each of the concerns you raise (or even better actually doing something about them).

    I’ve lived in the UK and can tell you every country has its problems and the grass is not always greener. Just imagine what’s going to happen in Europe if Mad Vlad attacks a Nato country.

    Looking forward to your response.

  • Dr Kym Morton says:

    You are missing the point, there is always opportunity in chaos. South African’s are at their best when faced with adversity and challenges.

  • Jimbo Smith says:

    And, no doubt, Frogboiler will do what he does best….deliver an endless torrent of largely meaningless words with all his sycophants nodding their heads and it will another case of INACTION. All around these hopeless ” leaders ” is destruction as described in the article, but they live in another universe of blue lights, gross self importance, blatant corruption and blindness.

  • Patrick O'Shea says:

    Unless and until the incumbent regime is changed there will be no improvement. I guess they could offer a tax haven for other criminal elements that they are cosy with, that might generate a bit of FDI.

  • Karsten Döpke says:

    It takes a certain amount of IQ to know that you’re not very bright, I have a feeling the ones at the country’s tiller are even lacking this attribute.

  • Just Me says:

    The picture says it all. SA is broken, thanks to the ANC.

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