SA sees “drastic decline” in fixed investment activity in 2023

South Africa's fixed investment activity in 2023 has experienced a dramatic decline, according to Nedbank's Capital Expenditure Project Listing. The persistent power outages, rising interest rates, and cost pressures have had a significant impact on profitability, eroding business confidence. The total value of new projects announced during the year plummeted from R259.9 billion in 2022 to R184.8 billion in 2023. This decline is a cause for concern as it reflects the challenges faced by businesses in the current economic environment. Crystal Huntley, Economist at Nedbank, highlighted the drastic drop in the overall number of projects and their value. The number of projects announced decreased from 67 to 51, while the total value of projects fell from around 260 to R184.8 billion. The government sector has seen an increase in its share of total projects announced, accounting for 55 percent of the total value. In contrast, the private sector's contribution has significantly decreased to only 30 percent, with public corporations also experiencing a drop in their announced projects. The shift towards government expenditure, focusing more on maintenance and upkeep rather than new infrastructure, is a significant dynamic observed in the current scenario. The largest project announced by the government is valued at R45 billion, intended for the upgrading of wastewater works, sewers, and road infrastructure. This trend reflects a cautious approach by businesses, hesitant to invest in a weak domestic economy amidst global economic challenges. Looking ahead to 2024, Nedbank forecasts a further slowdown in fixed investment activity, with a projected drop to around one percent from the current estimate of four percent. However, there is optimism for an uptick in fixed investment in 2025 to approximately 3.9 percent, driven by renewable energy projects expected to come online in the next two years. A significant portion of the upcoming investments is expected to come from renewable energy projects, with estimates suggesting over 25 to 30 percent of the total projects. This shift towards renewable energy comes as South Africa grapples with an ongoing energy crisis, highlighting the importance of sustainable and alternative energy sources. In conclusion, the decline in fixed investment activity in 2023 reflects the challenges faced by businesses in South Africa. The shift towards government expenditure and the focus on maintenance rather than new infrastructure projects indicate a cautious approach in uncertain economic times. However, the potential for an uptick in fixed investment in 2025, driven by renewable energy projects, offers a glimmer of hope for the country's economic recovery.