IRR challenges InvestSA on fake transformation sabotaging SA’s investment case

South Africa’s official investment agency, InvestSA, must take a clear position against the fake transformation that has benefited a well-connected few at the expense of millions of poor South Africans and back practical, non-racial policy alternatives that would generate investor confidence and boost jobs growth.

This is the essence of a letter the Institute of Relations (IRR) has written to InvestSA as part of its investigation into the weakness of the South African investment case. This comes on the back of the latest economic figures showing a decline in the crucial economic indicator of gross fixed capital formation (GFCF).

InvestSA is a division of the Department of Trade, Industry and Competition, and, according to its website, is a “one-stop shop” for investors interested in doing business in the country.

By a range of key indices, both foreign and domestic investors are choosing to hold on to their capital rather than invest it in South Africa. These are firms that could be developing the country’s infrastructure, mining and renewable energy sectors, and establishing factories to manufacture goods locally, which would drive job creation and expand employment. Instead, investors are deterred by government policies that punish growth instead of encouraging it.

The decline in GFCF, the key measure of substantive investment in the economy, highlights the bleak state of South Africa’s investment landscape. GFCF tracks spending on assets such as property, machinery and equipment. It contracted by 3,7% over the past year and remains at barely half the 30% target set by the National Development Plan for 2030.

Says Makone Maja, the IRR’s Strategic Engagements Manager: “Jobs flow from growth, and growth flows from investment. A rise in these factors is what will lift our country out of the trenches of poverty. It is the cycle we must trigger to power the South African economy with secure, sustainable jobs that set people on an upward trajectory of social mobility. Yet these crucial metrics continue to decline because government has chosen fake transformation instead of real transformation.”

Economic growth, unemployment and gross fixed capital formation are all weaker today than they were in 2019. While other countries have recovered from the pandemic and even surpassed their pre-Covid levels, South Africa is still struggling to lift these indicators back to where they stood before the coronavirus crisis. This failure is not inevitable. It is the result of policy choices that place ideology above growth.

Maja recalls President Cyril Ramaphosa’s 2018 warning about an ‘investment strike’, which he pledged to end but which still appears to persist. “At the time,” Maja notes, “Mr Ramaphosa promised to ease ‘any fears that investors may have of factories being expropriated’, identifying expropriation without compensation as one of the obstacles to investment. He assured the country that land reform would proceed for redress and transformation, ‘while providing certainty to those who own land, to those who need land and to those who are considering investing in the economy’.”

“Since then, the President has signed into law two of the most reckless assaults on property rights: the National Health Insurance Act and the Expropriation Act,” Maja says. “Government has also enacted the most draconian, racialised law in recent history in the Employment Equity Amendment Act. These fake transformation policies are destroying growth, jobs and opportunity. Real transformation means pro-growth policies that are non-racial, that create jobs, that attract investment, and that generate wealth. South Africans need policies that expand opportunity instead of dividing people by race and chasing away capital.”

Maja concludes: “As the feel-good mood around the Government of National Unity fades, InvestSA will need to show real willingness to make trade-offs that end fake transformation and position South Africa as a leading investment destination. The choice is clear. Fake transformation will lock South Africa into stagnation, while true economic transformation built on growth, jobs, investment and non-racial opportunity can lift millions out of poverty and put the country back on a path to prosperity.”

Media contact: Makone Maja, IRR Strategic Engagements Manager Tel: 079 418 6676 Email: makone@irr.org.za

Media enquiries: Michael Morris Tel: 066 302 1968 Email: michael@irr.org.za