It is the lowest since the 1998 emerging markets crisis, when interest rates hit 25.5%. It was worse than the global financial crisis in 2009 when the economy shrank for three quarters.
Next we will be hearing again about an “investment strike” — a term frequently used by some to accuse business of trying to sabotage the economy (most recently SA Communist Party general secretary Blade Nzimande in a speech in August).
The sense of “strike” seems to be in a Star Wars rather than labour sense, an attack rather than a withdrawal, even though the latter is what actually happens. With businesses this pessimistic about the future of the country, they are not going to be taking scarce capital and putting it at risk to expand operations. There is no intention to undermine the economy — it is a reaction, a return to the barracks, a view that the risks of an advance are too great.
President Cyril Ramaphosa has made much of an investment drive to attract investors. He has appointed eminent emissaries to engage with the world and held big conferences, with one last October raising R290bn in pledges. But the real problem is domestic investment at the macro level, by which I mean the environment has to be fostered for millions of decisionmakers to choose expansive, growth-inducing investment rather than risk defensiveness.
The decision to put money into local bricks and mortar requires higher credence in the economy being able to deliver a return. One cannot use the strategy deployed so far — of getting business leaders together and obtaining promises to invest and then phoning and harassing them about whether they have done it. A macro strategy permits no promises or phone calls. It requires inducing investment decisions solely because millions of people believe it is in their own best interest to invest. That it will deliver higher returns than the alternatives.
It needs to be the fixed kind that goes into building factories and buying machines to enable potential output to grow rather than the portfolio kind that goes into JSE-listed companies. Portfolio investment can rely on corporate management to shift exposures to foreign higher-growth markets or to sell commodities that earn hard currency, so listed companies can do just fine while the domestic economy withers. On its own, it does little to increase economic capacity.
Of course, I should hasten to point out that the figures don’t reveal this absence of investment yet. Private-sector investment spending has actually been higher than government’s and state-owned enterprises’ for a few years (which was always the irony whenever someone delivered the “investment strike” accusation at business). But it has dipped the past two quarters.
Corporate credit also provides an indication — the rate of growth of lending to companies has been drifting downward since 2015. But that business confidence figure is a leading indicator. You can be sure the actual investment numbers will start to reflect negative decisions soon.
Investment decisions are about two things: projected returns and risk. The government has a lot to do with both, though it is the latter that is easier. The government has within its power the ability to offer regulatory certainty. And, despite promises, regulatory certainty has been scarce.
The mining charter, digital migration, visa rules, Eskom resolution, energy policy and so on are still dragging on after promises they will be dealt with swiftly. Instead, the big policy moves that have been made have been negative.
National Health Insurance (NHI), for instance, offers a Brexitesque level of uncertainty set to drag on for years as attempts are made to ram into existence a fiscally impossible policy. The Credit Amendment Act signed into law by the president two weeks ago risks creating permanent uncertainty about the security of lending at the lower end of the market. It is hard to point to one single actually delivered policy that is good for business.