This is a paid article which your subscription is allowing you to read.

South Africa’s fixed investment rate has fallen far behind the rest of the world, boding ill for South Africa’s future economic trajectory.

Fixed investment is the money spent on the productive assets that make an economy grow, such as factories, mines, machines, ports, rail, roads, energy, and technology. When fixed investment rises, it usually means confidence is rising too, and countries that invest more in productive assets tend to achieve higher economic growth rates over time. Businesses believe the future is worth betting on, so they expand, hire, and build.

That is what South Africa started to do after 1994. Fixed investment rose from 15.0% of GDP in 1994 to 21.6% in 2008. By 2008, the world average was 25.0%, emerging markets averaged 29.7%, the BRICS average was 27.9%, and upper-middle-income economies averaged 31.8%, so South Africa had narrowed the gap significantly. Confidence was improving, and the country appeared to be moving in the same direction as other growing economies.

After 2008, that confidence broke. Investment fell back to about 14.0% of GDP by 2025, while the world average was 25.4%, the BRICS average was 24.6%, emerging-market peers were at 23.4%, and upper-middle-income economies were at 32.8%. By comparison, South Africa’s 14.0% was 11.4 percentage points below the world average, 10.6 points below the BRICS average, 9.4 points below emerging-market peers, and 18.8 points below upper-middle-income economies. South Africa is now investing far less than almost every group it should be competing with.

That helps explain the country’s weak growth. Low confidence leads to low investment and low investment leads to weak growth. When less money goes into building new productive capacity, the economy has less ability to expand.

For South Africans, this means fewer new businesses, fewer jobs, weaker wages, poorer public services, and less chance of moving into the middle class. The country is not just growing slowly. It is failing to build the economy its people need.

For South Africa to start growing at the levels that are necessary to make a real difference to our very high unemployment and poverty rates, much higher rates of fixed investment are vital. However, this will only happen when the government steps back on growth-retarding policies, such as black economic empowerment, expropriation without compensation, and National Health Insurance. The government also needs to change its adversarial approach to the United States (US) and rather work to secure an investment and trade pact with Washington DC, something that their counterparts in the US are willing to work towards.

As long as these policies remain in place, which means our levels of fixed investment remain so low, South Africa’s economic growth will remain in the doldrums, dooming millions of South Africans to a life of penury.