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JIMMY MOYAHA: As David Shapiro pointed out, Investec has published its Fixed Investment Outlook. This document underscores the essential infrastructure focus necessary for propelling South Africa’s growth, particularly as we look toward 2025 and the years that follow.

I am thrilled to welcome Investec’s chief economist, Annabel Bishop, who will help us delve into this topic and its implications. Good evening, Annabel. It is a pleasure to have this conversation with you. Best wishes as we begin the new year.

The year has started off productively in terms of research and insights. While these discussions have been ongoing, the spotlight is now firmly fixed on fixed investment. What drives this emphasis this year?

ANNABEL BISHOP: Hi, and a Happy New Year to you as well. Right now in South Africa, it’s critical that we prevent the country from lagging behind in economic growth. This stagnation adversely impacts employment, particularly in relation to fixed investment.

The challenges are well documented. Various analyses have pinpointed the issues we confront concerning fixed investment, including the need for improved infrastructure, economic stasis, and unemployment.

It’s a lengthy process, but we must initiate efforts to repair, maintain, and significantly enhance our infrastructure delivery within South Africa.

JIMMY MOYAHA: When we talk about infrastructure, we must address both capital and social infrastructure. Issues such as the water scarcity crisis in South Africa require urgent action, especially regarding social expenditures. These are critical, but how do we reconcile this with the demand for capital infrastructure to drive growth?

ANNABEL BISHOP: That’s a key part of the conversation. All types of infrastructure play a significant role.

As you mentioned, South Africa is a water-scarce country, receiving only half the global rainfall average. With high rates of evaporation and limited opportunities for expanding water resources, efficient management of water delivery infrastructures is crucial. Currently, three-quarters of our usable surface water resources are already in use.

Aside from water supply, we need to improve our delivery systems such as pipelines and other general infrastructure. Unfortunately, our bulk infrastructure has significantly deteriorated nationwide.

Read: Johannesburg needs R221bn for infrastructure repairs

Additionally, Transnet is experiencing considerable delays at ports, a concerning trend as we continue to see a downward trend in freight levels. Although railways had a moment of positivity last year, since 2022, the freight transportation sector has encountered troubling declines.

Listen/read: Transnet costs the SA economy R1bn daily

Efficient freight transport is vital for South Africa, making rail a favored option due to the high maintenance costs associated with roads and highways.

To boost productivity and achieve a GDP growth rate surpassing 5%, which would result in job creation and lower unemployment levels, we must enhance our infrastructure.

Current infrastructure is inadequate to accommodate the existing level of activity.

JIMMY MOYAHA: Regarding that ambitious 5% growth goal, it appears to be feasible if we can effectively align our strategies.

As part of the infrastructure plans outlined, many government entities have indicated that new infrastructure projects are forthcoming. How can we ensure that existing infrastructure meets current demands while still investing in new projects to encourage growth?

ANNABEL BISHOP: That’s a crucial point. We need to maintain and enhance the capacity of existing infrastructure while also embarking on new projects to facilitate rapid economic growth.

According to the presidency, had Transnet been fully operational, South Africa might have recorded a 4% economic growth last year and in 2023 instead of nearing 1% growth.

For example, take a mining firm extracting minerals and metals. If they are unable to export their products, they will have to scale back production, which could potentially lead to workforce reductions due to stockpiling challenges.

Recent developments highlight the difficulties faced by companies such as ArcelorMittal.

Read: ArcelorMittal SA sees a 27% drop following plant closures

While it’s encouraging that we seem to be making strides in resolving the electricity crisis, as acknowledged by the presidency, caution is advised as they warn of potential load-shedding instances.

Transnet’s issues are complex and not as easily resolved as those faced by Eskom.

Eskom has made use of original equipment manufacturers’ expertise to restore power stations to full capacity. In contrast, Transnet grapples with extensive rail networks plagued by issues like infrastructure vandalism and theft.

A potential solution could involve banning the export of scrap metal to deter criminals from dismantling and selling crucial infrastructure parts.

Read:
Driving a long-distance freight train ‘blind’
Estimate suggests R80bn and 10 years to repair Transnet’s core rail network

It is vital for South Africa’s infrastructure strategy to focus on restructuring Transnet’s operations into specialized divisions and enhancing regulatory clarity to attract private-sector investors regarding returns and costs.

Nevertheless, an assessment of the current rail infrastructure’s capability to accommodate new operators and services is also essential.

In summary, addressing crime undermining vital infrastructure, along with establishing regulatory certainty and encouraging private sector investment, is crucial.

JIMMY MOYAHA: From a private sector standpoint, what strategies can we adopt to draw in more investment?

For an extended period, the message has portrayed South Africa as a prime destination for foreign investment, emphasizing the necessity for capital influx into infrastructure projects.

How can we improve our appeal to capital markets for these initiatives, especially considering the associated costs?

ANNABEL BISHOP: Ultimately, the primary factors at play are risk and return.

What are the risks tied to investments, and what returns can investors expect? Greater certainty in these areas will lead to heightened investment from both foreign and domestic sources into South Africa’s infrastructure.

Regulatory clarity is crucial.

Private investors need a clear understanding of the landscape and how to operate successfully within it.

The uncertainties in the railway system, for instance, mean that if there’s a significant increase in rail transport and activities, operators need guarantees regarding rail capacity and timely operations at ports—currently a major profitability concern.

Therefore, addressing port issues is essential to reduce congestion and streamline operations, which may require additional infrastructure investment.

This situation is complicated and involves numerous interconnected factors. We should anticipate challenges related to Transnet to persist longer than expected.

On a positive note, we anticipate economic growth this year.

While there’s no sense of despair, we’re forecasting a GDP growth of 1.8% compared to last year’s 0.8%.

This growth will be driven by enhancements to South Africa’s infrastructure, including improvements to water systems and investments in rail and ports.

We must also not disregard ongoing work in electricity generation and distribution, particularly the expansion of transmission networks across South Africa.

JIMMY MOYAHA: While the outlook is not entirely gloomy, it’s heartening to hear your optimistic projections for a positive year ahead. The anticipated growth of 1.8% is still below our capacity but seems achievable if we work collaboratively to foster development.

Thank you, Annabel, for sharing your insights. That was Annabel Bishop, chief economist at Investec, discussing the infrastructure and fixed investment outlook, which could act as a springboard for sustainable economic growth in South Africa.

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