We have an investment strike! Reviving SA's economy through domestic investment
Domestic investment, commonly known in economics as gross fixed capital formation (GFCF), is a critical driver of sustained and accelerated economic growth. It encompasses the total value of purchases made by the government, state-owned enterprises and the private sector of fixed assets, including infrastructure, machinery, equipment and buildings.
At its core, domestic investment focuses on enhancing the economy's productive capacity, boosting competitiveness and creating a foundation for future job creation and income growth. Sustained high levels of investment at between 25% and 30% of GDP are needed in South Africa to get the economy to grow above 3%.
Domestic investment plays a vital role in driving economic growth, enhancing productivity and generating employment opportunities. Consistently high levels of GFCF are often indicative of a nation on a positive growth trajectory, where increased capital investment leads to better living conditions, technological progress and stronger economic resilience.
Moreover, GFCF is closely linked to investor confidence and future outlooks – when businesses and the government invest in long-term assets, it reflects a positive sentiment and a commitment to the country's development and prosperity.
In emerging economies such as South Africa, where unemployment and inequality are deeply rooted, domestic investment – particularly in infrastructure – is crucial for fostering inclusive growth by boosting short-term economic activity and enhancing long-term productivity and access.
Despite its vital role in economic growth, South Africa's GFCF as a proportion of GDP has been alarmingly low and on a downward trend for over a decade, falling from around 24% in 2008 to below 15% in recent years, significantly short of the National Development Plan's 30% target.
This sharp decline signals deeper structural issues in the economy. South Africa has been trapped in a low-growth, low-investment environment where a lack of investor confidence, policy uncertainty and deteriorating public infrastructure deter both private and public sector capital expenditure.
In 1993, at the dawn of the new democratic dispensation, the domestic investment to GDP ratio was as low as 11.2%. By 2010, with the Fifa World Cup in SA, investment peaked at 18.7%, and in 2024 it had dropped back to 14.2%. In the first quarter of 2025 the ratio was even lower at 13.5%.
From 2010 to 2025, GDP annual average growth was only 0.3% while domestic investment was a very disappointing -0.12%. This sustained decline reflects waning investor confidence, policy uncertainty and weak economic fundamentals. Low investment undermines future productive capacity, employment creation and long-term economic growth potential.
Figure 1 illustrates domestic investment at constant prices from 2010 to 2025, disaggregated by the government, state-owned enterprises (SOEs) and the private sector, revealing a clear trend of decline and stagnation.
Government and SOE investment dropped from 6.3% of GDP in 2010 to 3.9% in 2025, while private sector investment decreased from 11.5% to 9.7% over the same period.
Additionally, the ratio of private to public investment shifted significantly from 1.8:1 in 2010 to 2.3:1 by 2025. This indicates severe fiscal constraints, inefficiencies in public investment management and weakened state capacity to drive infrastructure development, which traditionally plays a catalytic role in crowding in private investment.
The private sector is increasingly disengaged owing to uncertainty, infrastructure bottlenecks, regulatory issues and energy challenges. The rising ratio does not reflect strength in private investment, but rather relative collapse of public sector investment.
Table 1 presents a summary of investment by type from the first quarter of 2010 to the first quarter of 2025, highlighting a clear structural shift. Most categories have seen a decline in their contribution to overall investment, apart from machinery and related equipment (including computers), which increased by 23.8%, the only category showing positive growth over the period.
This suggests a structural shift towards more capital-efficient, tech-based investment likely driven by cost-cutting, automation and digital transformation. However, the decline in construction-related investments reflects stalled infrastructure and housing development, further hampering job creation and urban development.
Table 2 indicates the contribution of the various sectors to investment from 1995 to 2024. Over the 30-year period, only three sectors had positive growth rates namely trade (with catering and accommodation), agriculture and manufacturing. All the other sectors had negative growth rates.
The economic base sectors (agri, mining, manufacturing and tourism) did well with a combined contribution to investment in 1995 of 37.5%, which increased to 41.3%.
These gains suggest potential green shoots in export-linked or value-added sectors, but broader deindustrialisation and disinvestment remain a concern: Electricity, water, finance and transport, which are critical for economic infrastructure, all saw sharp declines. Mining investment (-15.5%) declined despite being a traditional backbone, likely owing to policy and regulatory uncertainty.
Several key factors contribute to South Africa's weak investment performance:
Low economic growth and business confidence: Investors, as rational decision-makers, allocate capital where they anticipate future returns. However, South Africa's weak economic performance, averaging below 1% annual growth over the past decade, has diminished these expectations. Adding to this, political instability, corruption scandals and governance shortcomings have significantly weakened business confidence;
Energy, infrastructure and supply-chain constraints: The persistent electricity crisis has severely hindered production and heightened operational risks for businesses. Load shedding deters investment, particularly in energy-intensive sectors such as mining and manufacturing. When combined with inadequate infrastructure investment and maintenance, the overall appeal and value of investing have been significantly diminished;
Policy uncertainty, lack of a strategic plan and regulatory complexity: South Africa's record of shifting policies, ranging from land expropriation without compensation debates to unclear mining regulations, has created uncertainty that inhibits new investment;
Government fiscal constraints: Government debt has reached a fiscal cliff of 75% to GDP. This growing debt weak financial management with ineffective expenditure have significantly reduced capital budgets and investment in especially infrastructure; and
Poor governance, weak leadership, poor institutional capacity and ongoing corruption: Poor governance and corruption are deeply entrenched in all spheres of government, and transgression has no consequences.
The data indicates entrenched structural weaknesses such as poor governance, limited strategic planning and weak leadership, and a lack of investor trust. If South Africa is to break free from the current cycle of stagnation, decisive action is needed to revive domestic investment. The following policy interventions are essential:
Build infrastructure capacity and well-functioning supply-chain systems;
Implement a plan, create policy certainty, and reduce regulatory complexity;
Restore good governance at all levels including municipal and SOE capacity;
Boost business confidence and support SMEs;
Leverage the green economy potential and digital transitions;
Crowd in private investment, simplify investment processes and provide targeted incentives for manufacturing and technology upgrades;
Sectoral investment strategy: Leverage growth in agriculture, manufacturing and trade to drive reindustrialisation and rural development; and
Improve investment efficiency: Use public-private partnerships (PPPs) and performance-based budgeting to ensure quality and accountability.
Conclusion: A time for good governance and new bold leadership
The South African economic ship needs to change direction through various structural change strategies. Domestic investment is a critical driver of economic growth and development.
We need to escape the downward spiral of stagnant growth and increasing unemployment. Restoring investor confidence is one of the strategies through good governance, clear policy guidelines and by reducing regulations.
Achieving this will require strong political leadership and a firm commitment to long-term national development over short-term political interests. DM
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
IOL News
14 hours ago
- IOL News
Welcome to Prosper Nation, a weekly column reshaping the narrative about SA's potential
Dr Nik Eberl is the Founder & Executive Chair: The Future of Jobs Summit™ (Official T20 Side Event) .He will be writing a regular column in Business Report. Welcome to Prosper Nation, a weekly column dedicated to reshaping the narrative about South Africa's potential - and charting a new path to sustainable prosperity. This platform is born out of a belief that our greatest national resource is not mineral wealth or coastal beauty but our people and our untapped collective ambition. Each week, I will unpack the ideas, strategies, and stories that hold the power to turn South Africa into one of the Top 10 most prosperous nations on earth. Why Prosper Nation and Why Now? South Africa is brimming with potential. Yet we stand at a crossroads: high youth unemployment, structural inequality, and political fatigue have made many South Africans lose faith in our collective future. But I've seen what's possible when belief is restored. In 2010, I had the honour of developing and leading South Africa's Brand Ambassador Campaign for the FIFA World Cup™ - a campaign that would go on to earn the highest visitor brand score in the history of the tournament. We achieved that by doing something profound: uniting South Africans behind a shared story of excellence and possibility. We told the world we were ready - and then proved it. That campaign taught me that prosperity is not just GDP or job statistics. Prosperity is belief in action. When people believe in their country, their leaders, and their role in the future, they build with conviction. The 2010 Leadership ROI Hosted by South Africa, the 2010 FIFA World Cup™ was a shining example of what can be achieved when all members of a team, in this case the entire country, pull together behind a single vision and a common goal. It was none other than Nelson Mandela who had initiated the 2010 vision of 'hosting the most successful World Cup ever' (as pronounced by President Thabo Mbeki) when he travelled, against his doctors' advice, all the way to Zurich to address the FIFA World Cup Committee and lifted the World Cup trophy as South Africa was announced the host of the 2010 edition. For the following six years, it was almost miraculous to watch how all the stakeholders of Team South Africa, from government to business, civic society and even the churches, came together to deliver what CNN called 'the most memorable World Cup of all time'. And visitors did rate 2010 the best World Cup ever, as South Africa achieved a 92% Net Promoter Score (still the highest to date) and FIFA rated the country's service delivery for the World Cup 9 out of 10. Following the 2010 World Cup, South Africa's leisure tourism grew 30% year-on-year (and business tourism more than 39%) – and the exchange rate went all the way up to R7/$ in July 2010. Such is the power of leadership alignment. What You can expect from this column In the coming weeks and months, Prosper Nation will explore the foundational drivers of prosperity through five lenses: The Future of Jobs: Drawing from the national conversation sparked by our recent Future of Jobs Summit , we'll examine the high-potential industries poised to reshape our economy—from digital services and green energy to advanced manufacturing and agritech. Drawing from the national conversation sparked by our recent , we'll examine the high-potential industries poised to reshape our economy—from digital services and green energy to advanced manufacturing and agritech. Leadership That Builds: Over the past ten years, I have interviewed more than 500 business and public sector leaders across the country. These conversations offer a goldmine of insight - about what works, what doesn't, and what South African leadership needs to look like in the decade ahead. Over the past ten years, I have interviewed more than 500 business and public sector leaders across the country. These conversations offer a goldmine of insight - about what works, what doesn't, and what South African leadership needs to look like in the decade ahead. Spotlighting Hidden Champions: South Africa is already home to dozens of companies leading their niche globally—but too few know their names. We will tell their stories and share the strategies that can be scaled across sectors. South Africa is already home to dozens of companies leading their niche globally—but too few know their names. We will tell their stories and share the strategies that can be scaled across sectors. Unlocking Human Capital: We will explore how to transform South Africa into a global talent hub, capable of retaining its brightest minds and attracting the world's top innovators, developers, and creators. We will explore how to transform South Africa into a global talent hub, capable of retaining its brightest minds and attracting the world's top innovators, developers, and creators. Benchmarking Global Best Practice: We will regularly refer to tools like the Global Prosperity Index to measure where we stand - and where we must improve - across education, health, governance, social capital, and business conditions. From Insights to Action The Inaugural Future of Jobs Summit revealed something vital: South Africans aren't short on ideas - they're short on aligned action. We need platforms where business, government, educators, and entrepreneurs can co-create new solutions, not just exchange complaints. That's what this column will be: a bridge between vision and execution. We'll translate ideas into policy suggestions, citizen initiatives, and enterprise strategies. And we'll invite everyone - especially young South Africans - to see themselves as architects of the future, not just observers. Building Our Prosper Nation - Together In 2010, we reminded the world that South Africa could do the impossible. Now, it's time to do it again - but this time, not just for a tournament, but for our people. I believe South Africa has what it takes to become one of the most innovative, inclusive, and prosperous nations of the 21st century. And I invite you to join me on this journey - not just as a reader, but as a partner in building a future we can all believe in.
Daily Maverick
a day ago
- Daily Maverick
We have an investment strike! Reviving SA's economy through domestic investment
Domestic investment, commonly known in economics as gross fixed capital formation (GFCF), is a critical driver of sustained and accelerated economic growth. It encompasses the total value of purchases made by the government, state-owned enterprises and the private sector of fixed assets, including infrastructure, machinery, equipment and buildings. At its core, domestic investment focuses on enhancing the economy's productive capacity, boosting competitiveness and creating a foundation for future job creation and income growth. Sustained high levels of investment at between 25% and 30% of GDP are needed in South Africa to get the economy to grow above 3%. Domestic investment plays a vital role in driving economic growth, enhancing productivity and generating employment opportunities. Consistently high levels of GFCF are often indicative of a nation on a positive growth trajectory, where increased capital investment leads to better living conditions, technological progress and stronger economic resilience. Moreover, GFCF is closely linked to investor confidence and future outlooks – when businesses and the government invest in long-term assets, it reflects a positive sentiment and a commitment to the country's development and prosperity. In emerging economies such as South Africa, where unemployment and inequality are deeply rooted, domestic investment – particularly in infrastructure – is crucial for fostering inclusive growth by boosting short-term economic activity and enhancing long-term productivity and access. Despite its vital role in economic growth, South Africa's GFCF as a proportion of GDP has been alarmingly low and on a downward trend for over a decade, falling from around 24% in 2008 to below 15% in recent years, significantly short of the National Development Plan's 30% target. This sharp decline signals deeper structural issues in the economy. South Africa has been trapped in a low-growth, low-investment environment where a lack of investor confidence, policy uncertainty and deteriorating public infrastructure deter both private and public sector capital expenditure. In 1993, at the dawn of the new democratic dispensation, the domestic investment to GDP ratio was as low as 11.2%. By 2010, with the Fifa World Cup in SA, investment peaked at 18.7%, and in 2024 it had dropped back to 14.2%. In the first quarter of 2025 the ratio was even lower at 13.5%. From 2010 to 2025, GDP annual average growth was only 0.3% while domestic investment was a very disappointing -0.12%. This sustained decline reflects waning investor confidence, policy uncertainty and weak economic fundamentals. Low investment undermines future productive capacity, employment creation and long-term economic growth potential. Figure 1 illustrates domestic investment at constant prices from 2010 to 2025, disaggregated by the government, state-owned enterprises (SOEs) and the private sector, revealing a clear trend of decline and stagnation. Government and SOE investment dropped from 6.3% of GDP in 2010 to 3.9% in 2025, while private sector investment decreased from 11.5% to 9.7% over the same period. Additionally, the ratio of private to public investment shifted significantly from 1.8:1 in 2010 to 2.3:1 by 2025. This indicates severe fiscal constraints, inefficiencies in public investment management and weakened state capacity to drive infrastructure development, which traditionally plays a catalytic role in crowding in private investment. The private sector is increasingly disengaged owing to uncertainty, infrastructure bottlenecks, regulatory issues and energy challenges. The rising ratio does not reflect strength in private investment, but rather relative collapse of public sector investment. Table 1 presents a summary of investment by type from the first quarter of 2010 to the first quarter of 2025, highlighting a clear structural shift. Most categories have seen a decline in their contribution to overall investment, apart from machinery and related equipment (including computers), which increased by 23.8%, the only category showing positive growth over the period. This suggests a structural shift towards more capital-efficient, tech-based investment likely driven by cost-cutting, automation and digital transformation. However, the decline in construction-related investments reflects stalled infrastructure and housing development, further hampering job creation and urban development. Table 2 indicates the contribution of the various sectors to investment from 1995 to 2024. Over the 30-year period, only three sectors had positive growth rates namely trade (with catering and accommodation), agriculture and manufacturing. All the other sectors had negative growth rates. The economic base sectors (agri, mining, manufacturing and tourism) did well with a combined contribution to investment in 1995 of 37.5%, which increased to 41.3%. These gains suggest potential green shoots in export-linked or value-added sectors, but broader deindustrialisation and disinvestment remain a concern: Electricity, water, finance and transport, which are critical for economic infrastructure, all saw sharp declines. Mining investment (-15.5%) declined despite being a traditional backbone, likely owing to policy and regulatory uncertainty. Several key factors contribute to South Africa's weak investment performance: Low economic growth and business confidence: Investors, as rational decision-makers, allocate capital where they anticipate future returns. However, South Africa's weak economic performance, averaging below 1% annual growth over the past decade, has diminished these expectations. Adding to this, political instability, corruption scandals and governance shortcomings have significantly weakened business confidence; Energy, infrastructure and supply-chain constraints: The persistent electricity crisis has severely hindered production and heightened operational risks for businesses. Load shedding deters investment, particularly in energy-intensive sectors such as mining and manufacturing. When combined with inadequate infrastructure investment and maintenance, the overall appeal and value of investing have been significantly diminished; Policy uncertainty, lack of a strategic plan and regulatory complexity: South Africa's record of shifting policies, ranging from land expropriation without compensation debates to unclear mining regulations, has created uncertainty that inhibits new investment; Government fiscal constraints: Government debt has reached a fiscal cliff of 75% to GDP. This growing debt weak financial management with ineffective expenditure have significantly reduced capital budgets and investment in especially infrastructure; and Poor governance, weak leadership, poor institutional capacity and ongoing corruption: Poor governance and corruption are deeply entrenched in all spheres of government, and transgression has no consequences. The data indicates entrenched structural weaknesses such as poor governance, limited strategic planning and weak leadership, and a lack of investor trust. If South Africa is to break free from the current cycle of stagnation, decisive action is needed to revive domestic investment. The following policy interventions are essential: Build infrastructure capacity and well-functioning supply-chain systems; Implement a plan, create policy certainty, and reduce regulatory complexity; Restore good governance at all levels including municipal and SOE capacity; Boost business confidence and support SMEs; Leverage the green economy potential and digital transitions; Crowd in private investment, simplify investment processes and provide targeted incentives for manufacturing and technology upgrades; Sectoral investment strategy: Leverage growth in agriculture, manufacturing and trade to drive reindustrialisation and rural development; and Improve investment efficiency: Use public-private partnerships (PPPs) and performance-based budgeting to ensure quality and accountability. Conclusion: A time for good governance and new bold leadership The South African economic ship needs to change direction through various structural change strategies. Domestic investment is a critical driver of economic growth and development. We need to escape the downward spiral of stagnant growth and increasing unemployment. Restoring investor confidence is one of the strategies through good governance, clear policy guidelines and by reducing regulations. Achieving this will require strong political leadership and a firm commitment to long-term national development over short-term political interests. DM
Daily Maverick
2 days ago
- Daily Maverick
SA needs structural reform and moral courage, not more fiscal tinkering
At the third time of asking, on Wednesday, 11 June, Parliament considered, debated and voted for the 2025 Fiscal Framework, the basis for the Government of National Unity's (GNU) very first budget. To paraphrase former US congressman and economist Phil Gramm, passing a pro-growth budget is like going to heaven – everybody wants to do it, but nobody wants to do what you have to do to get there. Unfortunately, the GNU was not willing to do what it takes, and instead pushed through a budget that will not produce the rapid investment and growth required to begin our journey out of the economic doldrums. Growth flat, investment dried up, and taxes on the rise. We will be back here next year, facing another round of tax increases, because there will have been little to no investment. A budget ought to be a blueprint for progress. A reflection of our values, our priorities and our path forward as a country. The 2025 Fiscal Framework was preceded by the GNU's 31 priorities in its Medium-Term Development Plan, a bold promise of reform and delivery. Yet the Fiscal Framework tabled in Parliament offers no clear roadmap for achieving those priorities. There is no strategic alignment between what the government says it wants to do and what it is willing to fund. Without that alignment, these priorities are reduced to political rhetoric. We've seen this playbook before. The National Development Plan (NDP), hailed over a decade ago as the blueprint for South Africa's long-term development, now serves more as a reminder of broken promises than a source of policy coherence. Most of its targets on jobs, education, crime reduction and infrastructure remain unmet. Over the past 10 years, our economy has grown at an anaemic average of less than 1% per year. In the most recent quarter, growth was a paltry 0.1%. The only sector showing sustained growth is financial services. Meanwhile, real economy, labour-absorbing sectors such as agriculture, mining, manufacturing, construction, trade and transport have all declined in their contribution to GDP. These are precisely the sectors that should be powering inclusive growth and job creation. Gross fixed-capital formation, which is the clearest indicator of future growth and productivity, remains stagnant at 4.2%. These numbers are warnings. And they are being ignored. The diplomatic disaster last month at the White House only confirmed what many investors already suspect: South Africa is becoming uninvestable. And we are seeing the consequences. I recently visited Accra, the capital of Ghana, and you can feel the difference in the air. Cranes fill the skyline, a clear signal of construction, investment and progress. How many cranes are visible in Johannesburg, Cape Town or Durban today? We cannot tax our way out of this crisis. We must invest our way out. And that means fundamentally rethinking how we use the public purse. We must prioritise investments that unlock growth – in infrastructure, digital connectivity and efficient public transport systems. We need to fast-track the rollout of modern special economic zones, backed by genuine incentives. Instead of bold reforms or pro-growth investments, the Budget leans on familiar and increasingly regressive tactics: raising taxes on the already-overburdened middle class and borrowing more from international lenders without a clear plan for debt repayment or structural reform. This year's tax increase comes disguised as 'bracket creep' in personal income taxes, effectively taxing South Africans more without explicitly changing the rates. Next year, there are already whispers of additional taxes on the horizon. The government is milking a shrinking base instead of expanding the economic pie. Years ago, when VAT was raised, we were promised serious spending reforms and a leaner, more effective state. That promise, too, has faded. The state remains bloated, with an oversized Cabinet and a civil service often rewarded more for loyalty than for performance. There are still no performance scorecards linked to Cabinet roles. There has been no movement on taxing high-turnover, high-risk sectors such as online gambling. And crucial functions such as policing and justice remain underfunded and underperforming. The human cost of this drift is staggering. Education budgets in key provinces such as Free State, KwaZulu-Natal and North West are taking a hit, on track to run out of funds to support teachers. Our doctor-to-patient ratio now stands at 1 to 3,000, a clear sign of a healthcare system under collapse. The National Prosecuting Authority continues to buckle under the weight of its mandate, unable to bring criminals to justice in a country overrun by corruption and violent crime. There are small signs of momentum. Minister Barbara Creecy's commitment to rail and transport reform is welcome. Fixing our logistics network is essential for reigniting growth in key sectors such as agriculture and manufacturing. But isolated reforms are not enough. We need a coherent, national strategy backed by real budgetary commitments. I reject the idea that this is the best we can do. South Africa does not need more fiscal tinkering. We need structural reform and moral courage. I am proposing three immediate steps to be pursued in round two and three of the budget process , asParliament considers the Appropriations Bill and the Division of Revenue Bill. First, cut wasteful spending. Initiate independent, sector-wide spending reviews to reduce inefficiencies, and reallocate funds to frontline services. Second, legislate for investment. Pass laws that make South Africa the easiest place in Africa to do business. Prioritise local businesses with the same urgency we show global ones such as Starlink.
