In early August, the Bureau of Economic Research (BER) came out with a bold GDP forecast of 2.2% for 2025 — significantly more optimistic than the Reserve Bank, which is expecting growth of 1.5%.
If you consider that courageous, then you may find the goal set by the CEO pledgers to achieve 3.3% growth by the end of 2025 an even more ambitious task. It goes without saying that we are an economy desperate for growth, and thus all the optimism is welcome. However, how likely is it that we will achieve this growth?
About a year ago, more than 130 CEOs came together and pledged their collective support towards working with the government to help solve challenges faced by the country. The collaborative effort has had a few notable achievements, one being progress made in reducing load-shedding. After the recent celebration of the milestone, we also saw a renewal of pledges from the private sector as the country seeks ways to achieve stronger and more inclusive growth.
It took a domestic version of polycrisis to bring the public and private sectors to recognise they share a common goal and purpose. While various players have lamented the private sector’s (supposed) investment strike as an important contributor to stifled growth, equally there was a need to confront the inefficiencies, even failures, in the public sector’s duty to provide safety and security, infrastructure, and an enabling environment for economic activity and investor confidence.
It will be some time before the full impact of capital expenditure is felt in the economy, so low growth and disappointing employment numbers in the current year should not discourage the outlook too much
While commercial sentiment remains fragile, nothing really speaks to business confidence in an economy more than expenditure on immovable assets. There are signs tangible investment activity has already improved. According to Stats SA’s quarterly capital statistics, firms invested capital of more than R345bn in 2023, a notable 62.8% year-on-year increase from 2022, even though unadjusted for inflation and a weaker rand at that time. The rise was driven by marked improvements in capital expenditure in the third and fourth quarters of 2023, which coincided with the CEO pledge.
The first half of 2024 has set a positive tone for continued improvement. The latest figures show a 10.3% year-on-year increase in capital expenditure for the second quarter of 2024. While this data is volatile, it is worth noting some of the substantial improvements in capital expenditure categories: plant, machinery and equipment recorded the strongest growth in the second quarter, at 58.7% year-on-year, hinting at improvements in the mining and manufacturing sectors. Construction works grew by 11.6%, while vehicles and other transport equipment were up by just more than 10%.
In view of this progress, the potential to stimulate growth becomes more believable. Firms are readying themselves for work. The private sector can drive growth through the investment multiplier on GDP, while the public sector creates a favourable environment to foster new economic activity and gains from the additional capacity in the form of pledged resources and expertise companies have made to government. Combined with the GNU, yet another collaborative effort forged out of crisis, there is a growing sense that the puzzle is coming together for South Africa.
It will be some time before the full impact of capital expenditure is felt in the economy, so low growth and disappointing employment numbers in the current year should not discourage the outlook too much. When CEOs can bet on the potential of the country, it provides much encouragement. Also, the promise by employers of 1-million jobs by 2030 is much more believable than political rhetoric. Though business confidence index figures remain weak, the more frequent BER’s purchasing managers’ index breached the 50-point mark in September at 52.8 index points, providing another signal of changing sentiment in the business sector as 2024 ends.
Political standoffs, both real and perceived, are diminishing. External factors have brought many challenges to South Africa’s shores, but it is internal economic challenges that have had the country tripping over itself. Now that we have all found our seats at the same table, there is an easing of cautious and pessimistic thinking and decision-making. Having found reasons to work together, the nation can now dare to dream bigger and do what it takes to get us there. And who can stop the brave?
• Makhoba is an economist and the lead specialist of research and analytics at Liberty, the insurance and asset management arm of Standard Bank
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