News that South Africa’s purchasing managers index (PMI) rose to a 13-month high in March is hopefully an early signal that real confidence is beginning to return to some sections of the country’s still nervous private sector – the absence of which has led to a hiatus in job-generating investment.
One needs look no further than South Africa’s current corporate savings levels, which are at all-time highs, for evidence of continued reticence.
Despite the cash piles, businesses are, thus, still not investing, notwithstanding steady improvements in some confidence indexes and the overall growth outlook. Even corporate South Africa’s rebuilding of inventories has lagged global trends.
A recent Absa Capital report shows that corporate net savings rose to 7,8% of gross domestic product (GDP) last year and that lacklustre private-sector investment has left the economy overly dependent on consumers for its current cycle of growth.
The Barclays affiliate expects the consumer-led recovery to continue in 2011. But it cautions that consumers will feel increasingly vulnerable as the interest-rate cycle turns, particularly given that debt levels remain high – most local economists expect that interest rates will begin rising again from November.
For greater balance, the economy requires new investment and production.
However, there is traditionally a lag between any pick-up in private investment and a sustained recovery in public-sector investment. In other words, government and State-owned enterprises tend to show their hands before the private sector feels confident enough to begin participating.
In most engagements with the local construction industry, which sits at the vanguard of the project economy, sentiment is still pretty negative.
Practitioners acknowledge that the return of public investment is a certainty, but the timing of that return remains a debilitating imponderable. Some believe the revival is already starting, while others expect the “construction recession” to endure for the balance of the year, at least.
Absa Capital only expects a significant pick-up in private-sector-led investment from 2012, with fixed investment in the economy remaining weak. It contracted by a further 3,7% in 2010, over and above the 2,2% contraction recorded in recession-afflicted 2009.
The pullback from the private sector, which accounts for two-thirds of overall gross domestic fixed investment (GDFI), resulted in the GDFI’s contribution to GDP falling to 18,9% in the fourth quarter last year, from 19,3% previously – it peaked at 25% in 2008.
There are some signs that there will be a modest recovery in 2011, with the bank expecting GDFI growth to recover to 2,2% – well short of what is needed to even out overall GDP growth between investment and the consumer. In fact, it only sees GDFI as a percentage of GDP breaching 25% again towards the end of 2012 into the beginning of 2013.
However, the rise in the PMI is heartening as is the broad-based attention currently being given to the issue of job-rich growth.
Most heartening is the fact that the debate is no longer being shaped only by policy wonks and labour. At last, business leaders are starting to wade into the discussion, which is confidence building in itself.