Ayanda Shezi

Act or policy?

Economics Correspondent

STRONG capital expenditure growth in government and state-owned enterprises is expected to keep investment spending high over the medium term, according to investment bank JPMorgan.

Increased public-sector investment would be a key driver of the investment ratio going forward, but private investment should also be stimulated by "vigorous growth" in domestic demand and more stable inflation and interest rates, JPMorgan economist Marisa Fassler said.

Higher levels of fixed investment boost growth and job creation.

Investment growth in mining and manufacturing has slowed due to a strong rand and slowing global demand but these sectors were probably boosted by April’s surprise interest rate cut, a relatively weaker rand and high commodity prices, Fassler said in a research note.

The Reserve Bank’s latest Quarterly Bulletin shows that the share of investment to gross domestic product (GDP) rose to 16,8%, from 14,7% three years ago. Real growth in fixed investment accelerated to 10,1% in the first quarter, from 9,1% at the end of last year.

"Government is keen to increase the contribution of investment to GDP growth and would like to see the share of investment in GDP rising above 20% from its current level," said Fassler.

Capital spending by public corporations has been the main driver of gross fixed capital formation in the first quarter. Investment by state-owned companies rose 67,9% quarter on quarter, against an increase of 6,2% for all of last year.

"The recent surge is not surprising given the huge requirement for investment in the electricity and transport sectors to meet growing demand," Fassler said.

Five-year investment plans outlined in the 2005 budget show Eskom and Transnet plan to invest about R160bn in infrastructure.

Investment in the transport sector was boosted by the purchase of three new planes by South African Airways during the quarter.

"Clearly articulated investment plans of state-owned corporations suggest that this sector will continue to be a strong driver of investment growth over the next five years."

The research noted that capital spending by government had been slow to respond to the more expansionary budget. "The announcement of the preferred bidders to build the Gautrain is evidence that the wheels of government are starting to turn," Fassler said.