What can government do to improve the outlook for growth and job creation in light of some serious external and domestic economic headwinds?

Standard Banks chief economist Goolam Ballim has provided one quite helpful answer to this question: raise public-sector investment to levels where South Africa can once again sustain a minimum yearly investment rate of 25% of gross domestic product (GDP), which will, in turn, help raise overall growth levels.

In fact, he goes further, saying government needs to resurrect the practice of 30 years ago when “50c in every single rand of investment in the economy came from government”, as opposed to the current level of closer to 30c.

At such levels, the worst of the exogenous shocks and internal drags can be avoided, while the potential for new growth can be stimulated.

At the 25% level, the State’s cumulative investment programme will also increase to more than R1.5-trillion over a three-year cycle, and the money will be directed not towards ‘white elephants’, but towards much-needed transport, power, water and municipal infrastructure.

The problem is the State’s poor record in this regard – a factor that received prominence in a recent joint industry statement by the South African Federation of Civil Engineering Contractors and Consulting Engineers South Africa. The two organisations say they are “appalled” that municipalities have again underspent R12.4-billion set aside for infrastructure projects.

Business Unity South Africa has underlined the point by arguing that “2012 must be a year of game change for implementation”.

So the choice is a stark one. Either South Africa ups the game of those departments and State-owned companies tasked with implementing capital expenditure programmes, or the South African economy risks losing even more momentum.

Standard Bank itself is currently expecting GDP growth of only 2.8% in 2012 and 2.9% in 2013, which will 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.

The multiplier effects of achieving the 25% investment rate will also be significant, particularly in the context of otherwise low growth levels, slowing household spending and rising inflation. This is because it will create the conditions for a hesitant private sector to begin lifting its own investment levels. It is estimated that, for every rand invested 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 says. 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%.

Ballim argues that the “fierce urgency of now” should not be lost on the State, which will have to continue fighting a rearguard action unless the structural levels of investment in the economy are increased and sustained. But to galvanise the private sector, the political narrative also has to change and there also has to be greater policy certainty. “Anything but what we have seen in the mining sector,” Ballim concludes.