In 2018, as part of his new focus on industrialisation, job creation and faster economic growth, President Cyril Ramaphosa announced what many considered to be an ambitious target: attracting $100bn in new investment to SA within five years.
Last week, as he closed SA’s fourth investment conference, he announced: “With the pledges we have received today — and with cancellations and additions we have heard about from investors in previous conferences — we have now taken the total level of investment pledged at the four investment conferences to R1.14-trillion.”
In four years, he said, 95% of the original investment target has been reached.
It’s an opportune moment to reflect on an insight made by the think-tank Trade & Industrial Policy Strategies (TIPS) in its second quarterly “Real Economy Bulletin of 2018”.
Reflecting on the president’s investment target, TIPS noted that the scale of Ramaphosa’s proposal could be understood “by comparing it to domestic investment”.
“In 2017, total gross fixed capital formation in SA came to R870bn; attracting R1.2-trillion, even if realised over a five-year period, would boost that amount by over 25% every year.”
If SA has indeed succeeded in boosting fixed investment by an average 25% a year — it’s important to refer to the average, to factor in the Covid dip of the past two years — the question that has to follow is: what growth in employment can we expect from this investment, especially as we emerge from the Covid crisis?
In its 2018 bulletin, TIPS made the point that, “target aside, greater clarity is required about the new administration’s approach to investment”.
We need public funding to unlock private sector investment rather than replace it — and to unlock it in a way that benefits small enterprises
“Debates in the past few years have been dominated by a shift away from trying to maximise investment levels in the abstract, to an effort to target investment to maximise the value derived from each project. That means trying to encourage investor pledges around key impact metrics, such as employment, local procurement, and community development.”
The point the authors were making echoes that of the International Labour Organisation (ILO) in its 2014 report on the post-financial crisis investment strategy for Europe. At the time, the investment plan proposed by European Commission president Jean-Claude Juncker aimed to provide rapid economic stimulus that would foster Europe’s competitiveness while boosting much-needed employment. But, the ILO argued, the plan would only succeed in meeting its employment targets if “careful consideration is given to the design of the programme and its allocation”.
In the ILO’s view, “public investment projects should be selected on the basis of the extent to which they do not ‘crowd out’ private investments. Ensuring that small enterprises benefit (directly from the projects and indirectly through credit guarantee schemes and improved access to credit in general) is also crucial to [a project’s] success”.
Building the SME sector
With this, the ILO was repeating much of what we’ve heard in SA about the importance of project design rather than simply hoping for particular outcomes.
We need public funding to unlock private sector investment rather than replace it — and to unlock it in a way that benefits small enterprises directly in terms of landing work. This is based on the accepted view that small businesses deliver better outcomes on employment growth than do large corporations.
If we are to create jobs — and taking into account the vulnerability of small businesses to crises — credit-guarantee schemes are vital, as is small businesses’ access to credit in general, along with the will to support their participation in new projects. And, as the ILO pointed out, “complementary support to skills development will lead to additional net positive gains”.
Nothing the ILO or TIPS have said about investment campaigns and job creation is fundamentally new . The question is, now that we claim success on the investment front, will we be able to translate that into similar success for jobs?
* Payi is founding director of Nascence Advisory & Research
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