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Capital expenditure expected to drop in 2004 - report

Posted On Wednesday, 24 March 2004 02:00 Published by
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A report released by the Nedbank Economic Unit suggests that the recent strong momentum in capital spending in South Africa is likely to ease in 2004.

However, despite a noticeable slowdown in the number and value of new projects announced during 2003, long-term projects will keep overall growth reasonable in 2004.

Nedbank’s capital expenditure report shows that 67 new projects, to the value of R44,1-billion, were announced in 2003, compared with 76 projects, of approximately R59,4-billion this year. This is a decline of around 26% in real terms.

“In the case of the private sector, the real value of new projects fell by around 12%. The strong rand and weak global economy impacted negatively on exporters’ decisions to undertake new projects, convincing many firms within the mining and manufacturing sectors to postpone spending or to place certain projects on hold or even to cancel them,” Nedbank senior economist Nicky Weimar said.

He added that the high costs of capital in 2002 and early 2003, coupled with growing expectations of further rate cuts in the second half of the year, also influenced investment decisions, with many firms opting to wait for a lower interest rate environment before announcing or starting spending on new projects.

“Although the increasingly difficult trading environment has influenced new projects, spending on the major platinum mining and manufacturing projects announced in 2001 and 2002 continued, helping to keep private sector investment activity at reasonably strong levels,” said Weimar.

A similar trend was visible among public corporations, with new projects announced falling sharply. However, spending on existing large projects, notably the Coega Industrial Port, outside Port Elizabeth, boosted the official investment figures for 2003.

In sharp contrast to the private sector and public corporations, new projects announced by government increased in 2003 in line with their stated objective of expanding general infrastructure.

Some of the major government projects include Gauteng’s BLUE IQ initiatives, while others are aimed at building and expanding essential infrastructure in the provinces.

Weimar concluded that, while the rate of growth is expected to slow, overall activity levels should remain healthy.

Business confidence should improve as the global economy gathers momentum and international commodity prices recover, encouraging future investment plans.

However, the rand remains a key unknown. Also, this year’s National Budget suggests that public corporations can be expected to accelerate capital spending in the year ahead.
Engineering News 2004/03/22

Publisher: Engineering News
Source: Engineering News
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