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Fixed investments – new SA projects in 2023 down 29% in value from previous year

Fixed investments – new SA projects in 2023 down 29% in value from previous year
Photovoltaic panels at a solar plant that partially powers the Pan African Resources Plc Elikhulu Tailings Retreatment Plant, which extracts traces of gold from old mine waste, in Evander, South Africa, on Friday, Aug. 4, 2023. In May 2022, fed up with the Eskom-imposed electricity rationing that forced the company to curtail its power use by as much as 20%, gold mining company Pan African decided to hire JUWI to build a 10-megawatt solar farm to power its treatment plant east of Johannesburg. (Photo: Guillem Sartorio/Bloomberg via Getty Images)

The second-largest project is a partnership between the South African government and some of the world’s largest mining companies.

A report from Nedbank this week highlights the dampening effect that persistent power outages, rising interest rates and cost pressures have had on fixed investment activity in 2023.

The value of new projects announced during the year plunged 29% to R185-billion. In a surprising development, the government replaced the private sector as the major driver, with planned new projects of R101.6-billion, accounting for 55% of the total value of new projects announced in 2023.

Capital projects by the private sector dropped to a meagre R56.1-billion, amounting to around 30% of the total value of new projects announced. 

Nedbank group economists anticipate that this weakness in capital spending will continue this year, with gross fixed capital formation (GFCF) forecast to grow by about 0.5%.

The only boost that is expected will be from investment in renewable energy generation and public sector infrastructure spending. This will be one of the driving factors contributing to GFCF growth of around 3.9% in 2025, along with stronger global growth and firmer commodity prices.

Private sector spending

The largest project planned by the private sector last year is the construction of an R11-billion solar farm to be built by Mulilo Renewables in the Northern Cape.

Almost 50% of the projects announced by the private sector involve a shift to renewable energy sources (projects cumulatively valued at R27-billion), indicating the greater need for self-generating capacity by businesses amid the country’s energy crisis.

The other private sector energy projects include the ArcelorMittal renewable energy project (R4-billion), the DRDGOLD solar power plant and battery energy storage system (R2-billion), and the Lephalale solar project (R1.56-billion).

Cape Town leads government projects

Government announced R101.6-billion worth of projects, 60% of which are projects by the City of Cape Town. These include R45-billion for upgrading wastewater works, sewers and road infrastructure and R24-billion toward minimising load shedding.

The second-largest project is a partnership between the South African government and some of the world’s largest mining companies, which involves supplying major platinum and chrome mining operations and several hundred thousand people with drinking water.

Nedbank’s latest research confirms that the outlook for fixed investment remains cloudy.

“Consumer spending is likely to remain subdued, particularly in the first half of the year, depressed by high interest rates, worries about job security and weak consumer confidence.

“On the production side, persistent load shedding and a weak global economy will continue undermining activity in the mining and manufacturing sectors,” the report says. 

Business confidence

The RMB/BER Business Confidence Index fell to 31 in the fourth quarter of 2023 from 33 in the third and has been below the neutral 50 mark for 10 consecutive quarters. 

Business confidence is unlikely to improve significantly in 2024 due to persistent infrastructure constraints, slow economic reforms and higher production costs. Consequently, the private sector is likely to remain wary of large capital investment spending.

Government infrastructure programmes will continue as government attempts to create employment and address some of the social and infrastructure backlogs.

However, the pace will be slow, limited by budget constraints.

Developments that would encourage faster growth in fixed investment include resolving the energy crisis, accelerating structural reforms, restoring fiscal discipline and tackling crime and corruption – all of which would not only lift business confidence, but also raise South Africa’s potential growth rate.

Investec chief economist Annabel Bishop adds that severe crime also hobbles private sector confidence, with the latest Corruption Perceptions Index (CPI) 2023 (published in January 2024) showing that South Africa’s CPI score has declined over the past five years to 41.

This is on a scale where 0 is highly corrupt, 100 is very clean, and a score below 50 is considered to indicate “serious corruption problems.” DM

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Comments - Please in order to comment.

  • Pet Bug says:

    Good grief!?!
    City of Cape Town present budget is just under R70-billion – SA national budget about R2,22-trillion.
    But the city of CT is spending R45-billion on capital expenditure (sewers, roads, electricity) and is responsible for 60% of state projects!?

    That’s simply insane.
    What on dear earth is the government doing with their R2,2-trillion budget??!
    Good lord.

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