President Cyril Ramaphosa recently stated at the Presidential Investment Summit that “nearly R290 billion” had been pledged by both local and international companies seeking to participate in the president’s 5-year US$100 billion year plan.
According to calculations by PwC’s strategy and economists, this investment will add around R338 billion to the country’s GDP over the period 2019-2024.
It would also create or sustain an estimated 165,000 direct and indirect jobs (on average per year) and generate an estimated R59 billion in additional government revenue.
In addition, the investment would enable some R468.8 billion in potential production from 2025 to 2035.
This production would, over the ten-year period, add an estimated R505 billion to South Africa’s GDP, create and/or sustain an estimated 116,000 direct and indirect jobs (on average per year) and generate an estimated R133 billion in government revenue, PwC said.
On 16 April 2018, president Ramaphosa announced his five-year, US$100 billion investment drive in a bid to revive the South African economy. According to the president, his initiative is a response to the drop in total fixed investment in South Africa from 24% of GDP in 2008 to 19% of GDP in 2017, and foreign direct investment (FDI) inflows dropping 77% in rand terms over the same period.
Shortly after this announcement, the president began an international roadshow promoting trade and investment agreements with existing South African partners. A team of investment envoys was assembled to support the presidency.
“However, following a challenging economic and political period in South Africa leading up to the appointment of President Ramaphosa in February 2018, attracting FDI is much easier said than done,” PwC said.
Initial investment pledges were made by the governments of the United Arab Emirates (US$10 billion), the Kingdom of Saudi Arabia (US$10 billion) and the Republic of China (US$14.7 billion).
In an announcement about the Presidential Investment Summit held in October, investment envoy, Jacko Maree supported the president’s benchmark vision of a 50/50 split between local and foreign investment to make up the projected $100 billion total sum.
PwC stressed that FDI is an important enabler of economic growth. For emerging market economies, foreign investment inflows are crucial for transferring money and expertise from multinational companies to local enterprises. Emerging markets also need FDI to help finance infrastructure deficits.
Outcomes of the Investment Conference
During his final address to the summit, Ramaphosa declared that during the course of the day “nearly R290 billion” had been pledged by both local and international companies seeking to participate in the president’s five-year plan.
The R284.6 billion of investment pledged is expected to support long-term economic benefits for South Africa, including stronger real GDP growth, the creation of jobs and generation of additional tax revenue.
PwC estimates the potential economic activity over the next five years resulting from this investment will include:
- An estimated R338 billion added to GDP;
- Creating and/or sustaining an estimated 165,000 direct and indirect jobs, on average, per year; and
- An estimated R59 billion added to total government revenue, through both the collection of direct and indirect taxes.
These estimated economic impacts are only associated with the investment spending between 2019 and 2024, it said.
Long-term economic contributions will be created by the additional production in the various sectors, once the investment phase is complete.
“We estimate some R468.8 billion in potential production from 2025 to 2035 due to linkages,” PwC said, adding that its calculations show that the above-mentioned production would potentially contribute the following impacts over a ten-year period:
- R505 billion added to GDP;
- Creating and/or sustaining an estimated 116,000 direct and indirect jobs, on average per year; and
- R133 billion added to total government revenue.
PwC said that the continued investment in South Africa would assist in reducing unemployment, poverty and improve people’s lives, which, in turn, would also support long-term economic growth.
“This aligns with president Ramaphosa’s State of the Nation Address (SONA) 2018 in which he promised to use investment, among other levers, to address the country’s challenges of poverty and inequality.”
However, it stressed that this analysis is based on the assumption that all investment pledges, amounting to R284.6 billion, are translated into real investments, as the estimated economic contributions will be proportionate to the investment made.
“The challenge for South Africa is to ensure that the already-listed factors that influence investment are addressed. Investment pledges will only translate into actual investments if a supportive business environment, policy certainty and political stability are in place. These too were pledges of SONA 2018,” it said.
The R284.6 billion in investment pledges, however, are testament to the perceived improvement in the local investment climate and the optimism around South Africa heading into 2019.