SA must make most of investor interest
The euphoria following President Cyril Ramaphosa’s swearing-in in February, referred to as Ramaphoria, is the result of renewed investor confidence in SA. But locally there are signs that Ramaphoria is waning, although offshore investors are apparently still optimistic about opportunities in SA.
Ramaphosa’s “special envoys on investment” have secured commitments of R464bn worth of investment from China Saudi Arabia, the United Arab Emirates and the UK. In June Mercedes-Benz announced an additional R10bn expansion of its East London manufacturing plant.
Broadly, Saudi Arabia’s investment will be directed towards renewable energy.
There are no clear details on the sector focus for the investment from the UAE, while investment from China will focus on infrastructure, the ocean economy, the green economy, agriculture and finance. Funds from the UK will cover improvements to “ease of doing business” to make SA a conducive environment for foreign investment.
For SA to make the most of these investments, it should focus on three themes: sustainable resources; reinvigorating agriculture; and readiness for the fourth industrial revolution.
In terms of sustainable resources, climate change and the depletion of natural resources necessitate a national investment agenda towards renewable energy, new water sources and a green economy.
The New Growth Path articulates the Green Economy Accord, which was signed in 2011 on behalf of organised labour, business, community constituents and the government. However, the country has since made little progress in advancing the green economy agenda.
In 2017 China was the largest employer in the renewable energy sector with 3.9-million jobs, followed by Brazil, the US and India, according to the International Renewable Energy Agency. SA employed 44,000 workers in this sector.
Solar energy is the leading source of employment in the renewables sector with almost 3.9-million jobs, of which 2.2million are in China. With a portion of this investment allocated to the green economy SA can take advantage of the knowledge Chinese investors bring.
Saudi Arabia has been the leading country in water desalination. For SA as a water-scarce country, opportunity exists to take advantage of the interest that Saudi Arabia has shown in the SA economy, and put in place bilateral partnership programmes from which SA can learn new technologies and attract investment.
To reinvigorate the primary sectors, produce should be the focus. In 2017, agriculture, forestry and fishing contributed a meagre 2.6% to GDP, while it accounted for 5.3% of employment.
Reinvigorating investment in agriculture will ensure a greater absorption of unskilled and semi-skilled labour, and will create a new and inclusive economic base for the country. A key lesson SA can adopt from the Chinese is the five-year growth agenda approach at sector level.
For example, between 2011 and 2015, China prioritised output and the quality of particular produce, agro-processing, and technology. Essential in any sector is an ability to generate a comparative advantage.
For example, macadamia nut farming by just over 700 farmers in SA exports close to 95% of produce. In 2017 South Africa was the second-largest producer of macadamia nuts globally with a market share of 34.4%, compared to Australia’s 37%. It is with highvalue crops like these that SA also has a strong global export position and where investment needs to focus.
The fourth industrial revolution is said to be largely characterised by developments in artificial intelligence, 3-D printing, digital disruption and the Internet of Things. The subsequent mechanisation and labour substitution brought by this revolution are set to give policymakers sleepless nights.
Key focus areas for new opportunities include big data in agriculture, which will ensure more accurate reporting for land titles in the wake of expropriation, better understanding of climate conditions and how they impact commercial farming, and leveraging data to address challenges brought by infrastructure shortfalls. Another focus should be to accelerate investor-led import substitution — the investment commitment from Mercedes-Benz to expand production capacity locally is an example of how policy geared towards local production will prepare SA better for a changing global landscape. The mining sector is bleeding jobs and a growing manufacturing sector may be able to absorb skilled and unskilled labour, despite increasing mechanisation.
It is sometimes necessary to draw from a number of case studies in order to make a policy position more relevant and relatable.
SA finds itself in a structural economic growth trap and minor tweaks will not get the economy growing sustainably. The growth discussion is undoubtedly complex and layered, but what is for sure is that a structural reconfiguration of the economy is necessary to get on to a sustainable growth path that will absorb labour as well as generate globally competitive economic outcomes.
Skenjana is a PhD candidate and an investment and economic research specialist