Mariam Isa
26 August 2008
Johannesburg — INVESTMENT spending surged in the first half of this year despite power constraints, and looked set to buoy economic growth over the next couple of years, offsetting a slump in consumer demand, an independent survey showed yesterday.
Nedbank said the value of 80 new projects announced this year - spanning transport and energy infrastructure along with real estate, manufacturing and mining - amounted to R336bn, outstripping R194bn for the whole of last year.
"If you look at the value of announced projects there is enough momentum to keep growth chugging along despite the dramatic weakening in consumer spending," said Nedbank economist Nicky Weimar.
"There is no real evidence of a downscaling or scrapping of planned projects this year due to power constraints."
Nedbank revised its forecast for economic growth this year, up to 3,5% from 2,9%, after news this month that the economy had expanded more strongly than expected in the second quarter. Power outages early this year curbed growth to a 6½ -year low in the first quarter, due mainly to a huge contraction in mining output, which relies heavily on electricity supply.
This fanned concern that the inability of power utility Eskom to meet rising demand would prompt the cancellation of many new projects, adding to the negative effect of rising interest rates on the economy.
Figures from the Reserve Bank yesterday backed the view that although economic growth is still slowing, a full-scale downturn -- or recession -- is still not on the cards.
SA's leading indicator of economic growth, which points to trends six to 12 months in advance, dipped 2,8% in June after a fall of 3,1% in May, its biggest drop since August 2003.
"The trend is still down, but it's more moderate. It points to an economic slowdown," a Bank official said. SA's leading indicator has declined since July last year. But the coincident indicator is still rising, which means the economic expansion seen for nearly a decade is still intact.
A lot of that is due to spending by both the state and private sector, which looks set to boost gross fixed capital formation -- the broadest measure of investment -- to 25% of gross domestic product in the next few years, meeting an official goal.
Most of this year's new investment spending -- R264bn -- was generated by state-owned entities such as Eskom, which is expanding its capacity, and transport utility Transnet, which is pumping money into rail and ports.
But a healthy 64 new projects, to the tune of R72bn, were launched by the private sector.
Surprisingly, the biggest chunk (R38bn) went to finance and real estate, mainly to fund a surge in low cost housing and expanding retail outlets.
Altogether R24,7bn went to the manufacturing sector, the economy's second-biggest, but investment in mining was just R6,5bn, versus R49,7bn over the whole of last year.
Uncertainty over electricity supply might have contained expansion plans in both sectors, and threatened the rosy outlook, Weimar said. But so far infrastructure and industry projects in the pipeline were set to boost SA's export capacity, and growth potential.
Nedbank estimates actual investment spending will reach R184 bn this year, R157,5 bn next year and R115,6 bn in 2010.
Read comments. Write your own.
Copyright © 2008 Business Day. All rights reserved. Distributed by AllAfrica Global Media (allAfrica.com). To contact the copyright holder directly for corrections — or for permission to republish or make other authorized use of this material, click here.
AllAfrica aggregates and indexes content from over 125 African news organizations, plus more than 200 other sources, who are responsible for their own reporting and views. Articles and commentaries that identify allAfrica.com as the publisher are produced or commissioned by AllAfrica.
I am unable to understand how an expected decrease in expected investment over the next three years is a good thing.