The Citizen (KZN)

SA is in survival mode

HEAD ABOVE WATER: LACK OF CONFIDENCE SEEN IN DROP IN PROJECTS Nedbank expects weakness in capital spending to continue through 2024.

- Roy Cokayne

Alack of confidence by the private sector has been blamed for the sharp drop in fixed investment activity, with the value of new projects announced last year slumping by almost 29% (to R184.8 billion from R259.9 billion in 2022) – and by 53% since 2021, when it came in at R392.7 billion.

The 2023 Nedbank Capital Expenditur­e Project Listing report released last week attributes this to the slowdown in new projects announced by the private sector and public corporatio­ns.

Projects announced by the private sector fell by 147% to R56.1 billion from R203.3 billion in 2022, and last year accounted for only 30% of the total value of projects announced.

Capital expenditur­e projects announced by public corporatio­ns or state-owned enterprise­s slumped for the second consecutiv­e year by 22% to R27.1 billion from R34.9 billion in 2022 and 88.6% compared to R236.9 billion in 2021.

Private sector ‘forced to look a er itself’

Rowan Goeller, an analyst at Chronux Research, said the slump in the value of private sector projects announced indicates a lack of confidence in the economy, which does not bode well for economic growth and employment creation.

Last year was a year after the riots in KwaZulu-Natal and Gauteng and the country was hit by the worst load shedding to date.

However, he said the project listing numbers are projects announced and not projects that have actually been constructe­d.

“A fair amount of them don’t even happen, especially those announced by government.”

Goeller also said he believes many of the projects announced are to allow companies to remain sustainabl­e rather than them investing in new capacity.

He said the private sector has been forced to look after itself in terms of infrastruc­ture provision where government has failed.

He pointed to the meaningful number of companies investing in their own power, particular­ly solar energy.

“Load shedding distracts them, and they cannot really invest in growth because if they are worried about power, they need to make a plan for their existing business.

“It [the investment] possibly provides a base from which they can grow into the future, but in general, corporate SA is in survival mode and trying to remain sustainabl­e without any thought of growth because the economy is not growing and consumers are not spending,” he said.

Cashing in

Electricit­y, gas and water dominated last year, with projects worth R66.9 billion announced.

Two of the projects account for 67% of the total and are associated with water distributi­on.

The largest project is a R27 billion undertakin­g between the South African government and large mining companies aimed at improving the country’s dilapidate­d water infrastruc­ture, while R18 billion is for a project for the upgrade and refurbishm­ent of the Olifantspo­ort and Ebenezer Bulk Water Supply Scheme.

The most significan­t announceme­nt is BMW’s R4.2 billion investment in upgrading its Rosslyn plant for a shift toward producing more energy-efficient vehicles, including the new BMW X3 plug-in hybrid.

Load shedding distracts businesses having to make a plan

Li le momentum

Nedbank’s research confirms the recovery in fixed investment is struggling to gain momentum, with the challengin­g economic environmen­t “convincing more private companies to delay or postpone major investment plans”.

It expects the weakness in capital spending to continue into 2024, with gross fixed capital formation forecast to grow by only around 0.5%, down from a forecast 4.2% in 2023.

Business confidence is unlikely to improve significan­tly due to persistent infrastruc­ture constraint­s, slow economic reforms, and higher production costs.

 ?? Picture: Supplied ?? NEW PROJECT SLOWDOWN. The private sector has been forced to look after itself in terms of infrastruc­ture provision where government has failed.
Picture: Supplied NEW PROJECT SLOWDOWN. The private sector has been forced to look after itself in terms of infrastruc­ture provision where government has failed.

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