South African President Cyril Ramaphosa set a target of attracting 2 trillion rand ($110 billion) of new investment in the next five years, as executives pleaded with his government to urgently address the nation’s energy crisis, fix crumbling infrastructure and end rampant crime.
Ramaphosa issued his latest appeal on Thursday as companies struggle with hours of daily blackouts and the inability to transport everything from coal to citrus fruit, with criminals meeting little resistance to their stealing equipment and damaging infrastructure. The energy crisis alone is robbing the economy of as much as 899 million rand a day, according to the nation’s central bank.
“We are now confronted with the consequences of years of under-investment, mismanagement and corruption in our electricity, rail and logistics sectors,” Ramaphosa said. “Doubters have had reason to be skeptical. We are on a long journey to rebuild our country and recover the ground we have lost.”
Ramaphosa spoke after data this week showed the economy probably entered a technical recession in the first quarter. The BankservAfrica Economic Transactions Index, a measure that tracks interbank payments and an early indicator of economic activity, dropped 1.7% in the three months through March, after shrinking 1.3% in the prior quarter.
South African companies are spending billions of rands to keep businesses running as state-owned utility Eskom Holdings SOC Ltd., plagued by breakdowns at its coal-fired power plants, implements rotational blackouts for as long as 12 hours a day. That’s begun to hurt earnings.
JPMorgan Chase & Co. this week cut its recommendation for Shoprite Holdings Ltd., the continent’s biggest retailer, citing higher costs to deal with the energy crisis.
“We’ve got material challenges in the short-to-medium term and you know, those are centered on infrastructure in general,” Mike Brown, chief executive officer at Nedbank Group Ltd. said in an interview with Bloomberg TV. “However, if we are able to successfully deal with those, and there are numerous plans underway and we are making progress, I certainly see South Africa as a country of enormous potential.”
That sentiment was echoed by Rand Merchant Bank CEO Emrie Brown, who urged the government to accelerate policy overhauls needed to improve the nation’s business climate.
“The reality is that we can see the capital outflow that is happening, which to my mind is concerning,” said Brown. “That is definitely a sign of our investor community looking beyond South Africa’s borders to deliver the required returns to their investors.”
Still, Ramaphosa said he expects to exceed the 1.2 trillion rand of investment he targeted five years ago, as new commitments are announced at Thursday’s event.
Among a range of new proposals, Ramaphosa set out plans to address investor concerns by reiterating that his government is implementing an Energy Action Plan that seeks to eliminate outages within two years. The state will also establish a National Logistics Crisis Committee to enact a plan to repair the nation’s railways, ports and other transport infrastructure, while visa reforms demanded by business to enable them to more easily hire skilled workers are also being introduced, he said.
To address the “grave challenge” of crime and corruption specialized multidisciplinary task teams have been set up by the police to tackle incidents of economic sabotage such as violence and extortion at construction sites, illegal mining, infrastructure vandalism and cable theft, the president said.
“Policy within South Africa is absolutely crystal clear and I think observable from many quarters and highly valued,” said Duncan Wanblad, CEO of Anglo American Plc. “The frustration generally is the pace at which change happens to effect some of these policies.”
Investors have another reason to worry. South Africa’s political climate is the most uncertain since the end of the apartheid era, with investors acutely concerned about a potential coalition between the governing African National Congress and the leftist Economic Freedom Fighters party that advocates for the nationalization of banks, land and mines after next year’s elections.
“There’s probably the highest level of uncertainty politically that we’ve had since 1994,” said Richard Wainwright, chief executive officer of Investec Bank Ltd. “It does appear that they are siding in certain instances with the EFF. That will be very negative for international investors and domestic investors.”