Insights

PETER ATTARD MONTALTO: What counts for SA investment is not numbers but the X factor

February 3, 2020
Economics, South Africa, Insights

The scale of unemployment and inequality in SA is such that you cannot “start somewhere” with large set-piece investments and hope things percolate downwards.

This column was first published on Business Day

SA has its own odd version of the “economic calculation problem”.

The problem reflects that the lack of a price mechanism balancing supply and demand cannot be replaced by a full knowledge of the economy in a socialist system and trying to count and record demand and supply through other means.

While some on the Left in Pretoria might well study the original problem, the SA version was recently displayed at the UK-Africa investment summit and last November at the annual SA investment conference.

The pitch was off but there was a strange belief evident in the countability of individual investments: if you just have more individual commitments from individual companies with rand amounts attached, and more hands on which to count them, you will be fine. In this conception, because a certain company is investing in this industry and another in another industry it’s a sign of life in each industry. Never mind if a handful of other investors have turned down opportunities or become frustrated and put plans on ice.

The countability of investments is a bad thing. Investment should be occurring from uncontrolled optimism about the economic prospects of the country, facilitated and channelled by a capable state providing an appropriate foundation.

The scale of unemployment and inequality in SA is such that you cannot “start somewhere” with large set-piece investments and hope things percolate downwards. What is needed instead is bottom-up foundation of uncontrolled investment. Investment in small, medium and micro enterprises (SMEs), which is exceedingly hard to count, should be the goal, and with it higher jobs intensity.

It is ultimately a government mindset thing, and partly why there is so much business frustration with the government and so a gluing to the floor of business sentiment.

Sentiment is so low because the private sector doesn’t understand how the government’s counting of investments and attempt to “count” what is going on where fits with their much more profound need to reduce uncertainty and shift the benefit and cost dial of investing.

The lack of X factor at the UK-Africa investment summit (and seen too in Davos) was telling. There was no “Have you seen the Kenyans?” in hushed whispers of excitement about SA — despite some interesting companies present at the exhibition in the summit. Speaking to people around the edges of the summit — private and public sector investors, international and regional development banks — it was evident there was a lack of interest in SA.

Delving further into why showed not necessarily a hugely negative view on SA but a weariness of endless foot-shooting and missed opportunities. This was particularly the case for investors with huge amounts of capital waiting in the wings to invest in new rounds of renewables procurement who are agog at the fact there is an energy crisis yet a world-class procurement system is laying idle.

Among manufacturers and retailers and those in-between, there was a sense here that though SA has decent infrastructure and a sound financial system, it lacks a meaningful pitch for its cost-effective integration into the African Continental Free-Trade Area (AfCFTA), while other countries in the West and the East are pitching integrating regional supply chains that can be linked up across Africa with AfCFTA — giving a sense of scale.

Lost decade

This was compounded by the official pitch coming from the department of international relations & co-operation: “We want your investment but if you don’t invest, we will do it on our own” — to paraphrase minister Naledi Pandor at one event — was a bizarre off-the-cuff remark when you have such low savings, and a skills and employment problem. No, you can’t do it on your own — you need money from abroad and the skills and technology that comes with it.

Similarly, the lines that SA is “fixing” the lost decade is not as exciting a pitch as other countries simply asking investors what sort of environment they need, and reforming.

The final line of the pitch, however, has been repeated continually in recent years: “We are an exciting country that is full of potential as we overcome the legacy of apartheid.” No, you cannot use this 25 years after the event when so many other countries on the continent have far more recent traumas they are overcoming far faster (think Rwanda). The “charity case” line does not work with investors and looks bizarre.

Investors respond to countries with an X factor pitch that shows action, reform and shifting the cost-benefit dial. It’s not difficult. Get it right and you won’t be able to count the pledges.

• Attard Montalto is head of capital markets research at Intellidex.