In light of serious external and domestic economic headwinds, concerted efforts were required to raise public sector investment to levels where South Africa once again began sustaining a minimum yearly investment rate of 25% of gross domestic product (GDP), Standard Bank’s chief economist Goolam Ballim has argued.

At such levels of investment, the State’s cumulative investment programme could be more than R1.5-trillion into much-needed transport, power, water and municipal infrastructure over a three-year cycle, which could help underpin GDP growth rates of 4%.

But failure to facilitate such an upscaling in investment would result in the South African economy losing even more momentum. Standard Bank was currently expecting GDP growth of only 2.8% in 2012 and 2.9% in 2013, which would result in few new jobs and make it nearly impossible for the country to meet its aspiration of creating five-million new jobs by 2020 as outlined in the New Growth Path.

Releasing the bank’s ‘Economy 2012’ yearbook, Ballim stressed that government leadership was required to resurrect the practice of 30 years ago when “50c in every single rand of investment in the economy came from the government” – the current level was closer to 30c in every rand.

The multiplier effect would be significant not only in buttressing long-term growth in the context of otherwise low growth levels, slowing household spending and rising inflation, but also in creating the conditions for the private sector to begin making their own levels of investment. For every rand of investment by the public sector, there could be a 2.5% to 3% boost in the country’s long-term GDP.

“Aside from the nature of that investment being of a high quality with respect to elevating medium-term growth . . . it has the potential to create a virtuous investment cycle leading to higher growth, leading to greater profitability and leading to even further investment as firms anticipate heightened demand,” Ballim said.

South Africa witnessed such spin-offs in the period from 2003 to 2007 when the investment ratio rose to 25% of GDP – it had since declined to below 20%.

Currently, the private sector, which typically comprised 70% of all investment in South Africa, was a “hesitant” investor, owing partly to policy uncertainty, particularly in the resources environment, but also as a result of its concerns about the outlook for global aggregate demand.

Private sector and government investment declined sharply in the wake of the 2008 and 2009 ‘Great Recession’ and it was common cause that the trend had to be reversed to return South Africa to precrisis growth levels of above 4%, as well as to create employment.

Public sector infrastructure spending for the current year was estimated to come at R233-billion, or 7.8% of GDP. But there is a chronic trend of underexpenditure by government departments and the State-owned companies, which means that the figure might not be achieved.

In a joint industry statement released earlier in the week, the South African Federation of Civil Engineering Contractors and Consulting Engineers South Africa said they were “appalled” by the recent admission by government that municipalities had underspent R12.4-billion set aside for municipal infrastructure projects.

In a statement released to coincide with President Jacob Zuma’s State of the Nation address, Business Unity South Africa (Busa) underlined the point by stating that “2012 must be a year of game change for implementation”. Busa added that there was a need to accelerate the implementation of policies and programmes that have been agreed and funded.

Ballim argued that the “fierce urgency of now” should not be lost on the State, which would continue having to fighting a rearguard action unless the structural level of investment in the economy were increased and sustained.

But to galvanise the private sector, the political narrative also had to change and there had to be greater policy certainty. “Anything but what we have seen in the mining sector,” Ballim concluded.