South Africa’s economy contracted by 0.2% in the second quarter, with trade, manufacturing and mining all shrinking. These figures underscore the point that reform creates conditions for growth but it does not guarantee it, business organisation Business Leadership South Africa (BLSA) CEO Busi Mavuso writes in her latest weekly newsletter.

Agriculture grew slightly in the period, while electricity and transport provided more upside support.

Mavuso stresses that investment remains the missing ingredient, with gross fixed capital formation (GFCF) at just 13.6% of GDP. “Public sector investment targets set out in the budget are not being met.”

She asserts that while reliable electricity and logistics are growth enablers, businesses need to build confidence in their reliability and in the outlook to really commit to investing.

Therefore, the focus of Phase 3 of the business-government partnership is on growth.

“The structural reforms still need to be concluded, including the independent transmission system operator unbundling, the South African Wholesale Electricity Market launch and the establishment of the Transport Economic Regulator, but the environment has improved enough to begin shifting focus to the economic activity that reform enables,” Mavuso highlights. 

She emphasises that key sectors including mining, agriculture, tourism and infrastructure have latent potential that the loosened electricity and logistics constraints can now begin to unlock.

The partnership comprises over 30 CEOs working with government to ignite growth.

Mavuso posits that the figures signal a base from which to grow.

“Particularly notable was the weak level of investment, with GFCF coming in at 13.6% of GDP, 0.2% less than the previous quarter. Within that mix, private investment was relatively stable, but investment by State-owned enterprises (SOEs) and government was weak.

“This is partly by design, in that the new electricity-generating capacity and some of our logistics capacity are now being financed through private investment. But the public sector also has substantial targets for its own investment, spelt out in the annual budget but never delivered. Those now need to be achieved, improving the capacity of the economy to grow,” Mavuso says.  

She points out that this requires the balance sheets of SOEs to be capable of financing investment.

Mavuso highlights State-owned operator Transnet’s results last week as a positive signal that its finances are improving, which over time is expected to provide the balance sheet to allow the entity to resume higher volumes of investment.

Transnet reported a R4.6-billion profit, compared with a R1.9-billion loss the previous year, owing to the concessioning of the Durban Gateway Terminal, which brought in R12.5-billion for the entity: “a clear result of reforms that engage private sector investment”.

There were also modest gains in rail volumes; however, these remain behind target.

Mavuso also welcomed Transnet delivering these results with a clean audit opinion for the second year in a row.

“Together with the financial improvement at Eskom, our key network service providers are stabilising their financial positions, which will allow them to raise investment to fund critical new infrastructure and their own long-term financial sustainability,” she predicts.