“Obviously we know it's PR, so we give them PR back,” said one of those who made a pledge at this week's investment conference. And said a market player who declined to attend, virtually or otherwise: “When it becomes real we will know, and the mood will shift around it.” It was a conference evoking plenty of cynicism, not to mention pledge and plan fatigue. SA has had months of economic recovery promises and plans, and more than one infrastructure investment summit. This one arguably had to go ahead because President Cyril Ramaphosa had undertaken at the first one in 2018 that it would be an annual event — and the optics might not have looked good had he cancelled. But under the circumstances it was always going to risk being seen as more confidence trick than confidence booster.
Not that the investment wouldn’t be great if SA could get it. The times when SA saw high rates of economic growth and job creation — most recently in the boom years before the financial crisis — were times of strong growth in investment, particularly by the private sector. But those times are a fading memory. In the second quarter of this year fixed investment plummeted by 60%, the largest decline on record. But investment spending was in decline even before the Covid crisis, and the conferences sadly seem to have done little to arrest this.
To put it in perspective, the total R776bn of pledges that Ramaphosa has now managed to land is meaningful, but not quite as meaningful as it may appear. It’s less than the investment spend that's been happening each year, even in a bad year — the outcome last year was R908bn, of which 70% came from the private sector. If the pledges were to result in additional investment spending over the next few years, over and above what companies were going to do anyway, they would provide a lift. The evidence, though, is that most were projects already on the cards.
— For some the hassle of reporting back may not be worth the PR
That’s no bad thing: companies shouldn’t be investing just because the president invites them to a summit. Nor should they necessarily go ahead with projects that turn out not to be viable just because they pledged them.
To their credit, the presidency and the conference organisers emphasised that this time it was more about consolidating existing commitments than rounding up new ones. But in an economy with a highly uncertain outlook that’s expected to have contracted sharply this year, and to take three years to recover to pre-Covid levels, it’s no good trying to force companies to expand.
The investment conference process itself has some dysfunctional quirks — pledges of less than R100m don't make the list, which means that however significant small and medium companies might be for the economy or for job creation, their efforts aren't reflected (it’s the reason the R1.5bn pledge on the list from Belgium, for example, came from the country, not the individual Belgian SMEs in SA doing the investing). And since companies are required to report back regularly if they pledge, for some the hassle may not be worth the PR with the president.
But the more profound problem is that the government has failed to deliver on its side of the bargain. Until it implements at least some of the reforms it has serially promised, the investment environment will remain unconducive. Those reforms aren’t only electricity, broadband and regulatory reforms, but fiscal reform, too. The government’s ballooning debt is consuming much of the savings SA would otherwise have available for fixed investment spending. And the high cost of that debt cascades through to make the private sector’s cost of long-term borrowing to fund long-term investment projects high too.
It’s only if and when the reforms become real that the investment might become real too.
• Joffe is Business Times contributing editor
