Stats SA released the country’s Gross Domestic Product (GDP) figures for the third quarter of 2016 this week and we have to note with serious concern the weak levels of growth of the South African economy. The economy grew by a meagre 0,2% from 2016 Q2 to 2016 Q3 on seasonally adjusted and annualised terms by 0,7% from 2015 Q3 to 2016 Q3 year on year.
Even more frightening is the fact that the private sector’s fixed investment growth has slowed considerably since the beginning of 2014 and has turned negative after the third quarter of 2015.
It’s not surprising that economists are hitting a cadenza over the latest figures. Gerhard van Onselen, Economics Researcher at the Solidarity Research Institute (SRI), says the poor growth in gross fixed capital formation by private business enterprises stood out. “When the year on year growth rates in gross fixed capital formation (GFCF) – a measurement of fixed investment in the economy – are considered, a total decline from an estimated R165,5 billion in Q3 2015 to R155,4 billion in Q3 2016 is observed – a year over year decline of 6,1%. Furthermore, the capital formation in the private sector declined from an estimated R103,7 billion in Q3 2015 to R95,2 billion in Q3 2016 – a year on year decline of 8,2%.”
The lack of private sector investment growth is a problem as fixed investment is an especially important category of investment, and moreover, fixed investment by the private sector even more so, says Van Onselen.
He warns that it appears from the figures that the private sector is voting with their rands by not investing in fixed assets such as land, machinery and equipment at the higher rates of the past. “Investment is the lifeblood of any economy; declining private sector investment will detract from the future prospects of the economy.”
“While not much can be done about the external economic conditions, it is now imperative to consider steps to strengthen and improve the dynamics of the private sector. Reforms toward freer markets, fewer regulations and less ‘red tape’, and doing away with harmful policies that deter investment can go a long way to enhance prospects for renewed investment by the private sector,” Van Onselen concluded.