South Africa: Confidence Key to Spreading Green Shoots Emerging in Fixed Investment


It's getting difficult to find any positive news flow in South Africa at this point. The frustration around the stasis in policymaking is apparent in many conversations that happen every day. With sentiment this bleak, it is important for us to take note of the positive developments.

Improving fixed investment is going to be key to any longer-term improvement in South African growth prospects. The dearth of private sector investment since 2013 explains a great deal of the decline in the country's potential growth rate in recent years. This has been compounded by the virtual halt in investment spending by state-owned enterprises in the last three years, as stretched balance sheets and deteriorating access to debt markets constrained them. In turn, this lack of investment has resulted in significant financial distress in the construction space.

In the last two years, construction companies Basil Read and Group Five have been forced into business rescue due to the lack of major projects in South Africa. Aveng sold its construction arm, Grinaker-LTA, to a consortium in August 2019. All these companies have retrenched staff to cut costs.

The good news is that after a 4.1% seasonally adjusted quarter-on-quarter contraction in the first quarter...

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