SA business shows the money

26 August 2004

South African businesses have over the years been consistently investing in South Africa – and analysts say the idea that local businesses are unpatriotic is a myth.

That’s after the release of the Reserve Bank’s latest annual economic report, which shows an upward trend in investment spending in South Africa – spurred by a sharp increase in capital expenditure by parastatals, and a steady growth in investment by the private sector.

 

 

Private sector investment spending remained stable in the first half of 2004, recording 7.5% growth compared to 8% in 2003. This is in line with the consistent growth experienced in the sector in recent years.

The 0.5% slump was due the cancellation or postponement of capital projects in the mining sector. However, a strong increase in capital spending in the residential building sector and on vehicles was experienced, primarily due to low interest rates and the property boom.

FirstRand economist Rudolf Gouws told Business Day that the facts show that the idea that South Africa businesses are unpatriotic and afraid of investing in the country is a myth. Since 1993, fixed-capital formation by the private sector has grown steadily – even faster than the gross domestic product (GDP) growth rate.

The Reserve Bank said in its report that investment spending by public corporations spiked to 56.5% in the first half of 2004, up from 3.5% in the second half of last year. This was largely due to South African Airways’ purchase of Airbuses.

The Bank’s governor, Tito Mboweni, said the country’s fiscal and monetary policies were the predominant reasons for the increase in growth, and had led to increased spending in infrastructural development by the government to create jobs. The government’s spending also increased due to the procurement of a number of corvettes for the South African Navy.

Record economic expansion
Mboweni noted that the South African economy has been in an upward phase of the business cycle since the fourth quarter of 1999. “This is the longest recorded period of economic expansion in the history of the country”, he said.

An expansionary economic policy and aggressive domestic demand trebled economic growth to 3% in the first half of 2004, up from 1% in the last six months of 2003.

However, investment spending is still below the level needed to sufficiently stimulate job creation, according to Business Day. While investment spending has risen to 16% of GDP – up from 14.5% in 2001 – it is still below the long-term target average of 20%. Mboweni said it “certainly falls short of the fixed-capital formation ratio in more rapidly growing emerging markets”.

The Bank said that real economic growth in the domestic economy decelerated to only 2% for the year 2003 as a whole.

Production volumes in manufacturing dropped off, partly due to the weakness of demand in the European Union and a decline in international price competitiveness experienced by domestic producers. Output in agriculture fell back as a result of poor climatic conditions and relatively low product prices.

Lower interest rates, a growth-supportive fiscal policy stance and higher international prices for export commodities raised business as well as consumer confidence in the first half of 2004. All the main economic sectors have recorded increases in output in the first half of year.

The Bank said platinum production continued along a strong upward trajectory. In manufacturing, the increases in production were mainly a response to the strength of the domestic market.

Besides the boost to the construction sector, transport, storage and communication services displayed the strongest growth among the tertiary sectors.

SouthAfrica.info reporter