Nedbank’s project listing points to slower fixed investment

INVESTMENT in capital expenditure projects from private, government and state-owned enterprises slid 41 percent in the first half of this year to R48.8 billion from R83.2bn recorded during the first half of last year, according to a Nedbank report, which economists say points to subdued activity in the South African economy.

The bank’s Capital Expenditure Project Listing report, which was released earlier this week, showed that large capital expenditure projects fell 25 percent to 32 projects in the first half of this year from 44 in the first half of last year, and 46 in 2015.

Nedbank, which defines a capital project as worth at least R20m, said project announcements fell to 57 last year from 92 in 2015 and remained well below the record 217 announced in 1996 when optimism about the economy was high.

It said the the outlook for fixed-investment spending remained poor and it expected gross fixed capital formation to contract 0.6 percent this year, as weak confidence, the deteriorating political environment, depressed consumer spending as well as policy uncertainty in the mining sector, would hamper investment spending by the private sector.

University of Cape Town Graduate School of Development Policy director Professor Alan Hirsch said the drop in project announcements in the first half this year was bad news.

“It is very disturbing that investment plans are declining in value and number so sharply,” Hirsch said.

“The public sector is constrained (as a result of) belt-tightening due to balance sheet issues for the state and the state-owned enterprises (SOEs). The decline in investment will be very damaging for short and long-term growth and development, and it will worsen poverty and unemployment.”

South Africa entered a technical recession after the economy shrank 0.7 percent between January and March, denting business confidence amid a period of political uncertainty.

Nedbank said the annual project value record was set in 2006 at R1.1 trillion.

Dawie Roodt, the chief economist at Efficient Group, said the drop in state or SOEs’ capital spending was probably directly linked to the dismal state of their balance sheets.

Roodt said the drop in private spending was probably due to uncertainty related to politics and hence policy.

“This is likely to prevail until a change in the political leadership and a better outlook for economic performance,” he said.

Mike Schussler, chief economist at economists.co.za, said the situation would only improve once business confidence had recovered.

“This is further proof that the decline in growth in the economy is going to have a longer-term impact.

“Confidence will be key to having this turnaround,” he added.