One of government's biggest frustrations has been the lack of corporate investment, both from offshore and from its own companies, in response to its economic policies. Though talk of a private-sector investment boycott has died down among officials, there is clearly a sense of exasperation that its solid macroeconomic track record and orientation towards free markets has not been rewarded by renewed, job-creating investment.
This is the "puzzle" the World Bank seeks to resolve in its investment climate survey, conducted among 800 companies last year and released last week.
Over the period 1994-2003 SA lagged behind the growth and investment performance of what the World Bank terms "comparator" countries among emerging market economies. For example, per capita growth in Thailand and Malaysia has been three times faster than in SA, while fixed investment has been created at double the pace.
"Since the transition to democracy, SA's macroeconomic performance has been solid but not spectacular and has not exceeded 4,5% since 1993. In this respect SA appears locked into a path of sustained but moderate growth," says the bank.
The bank could not have known the more recent revised growth estimates, but the lack of sustained fixed investment in greenfield projects is still prevalent. This is what government is seeking to address in its 6% growth strategy.
The bank finds that "on many dimensions SA has a very good and improving investment climate", but four factors are cited most commonly by SA business as big obstacles to growth (see graph):
- Lack of appropriate worker skills and the resultant increase in labour costs. The survey finds that labour costs in SA are more than three times higher than in China and twice as expensive as in Brazil. Intensifying the trend is a poor training record by SA corporations, with only 45% of the workforce receiving company training. The comparative figure for Brazil is 77% and for China 69%.
- Macroeconomic instability, particularly the volatile rand. "Consistent with the idea that exchange rate stability is driving the negative perceptions, exporters were far more concerned about it than nonexporters," the bank says.
- Labour regulation that is far more rigid than in most comparator countries and in all Organisation for Economic Co-operation & Development countries, particularly the difficulty of hiring and firing workers. Only Brazil shows similar levels of labour rigidity; and
- Crime , particularly property crime - robbery and aggravated robbery. According to the survey, the direct losses experienced by SA firms were equal to about 1,1% of sales, higher than in most comparator countries, including Russia. Security costs account for about two-thirds of the cost of crime in SA.
SA companies often cite tax rates, cumbersome trade regulation and the relatively high cost of financing, too.
The World Bank says there are other investment inhibitors that are difficult to determine by business surveys . One of these is market concentration. The bank cites research that suggests the SA economy is highly concentrated, "imposing high barriers to entry".
Furthermore, a significant proportion of investment funds is being used to finance empowerment transactions which generally don't create new capital stock.
