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A study by Industrial Development Corporation (IDC) warns that the dearth of private sector investment has become a structural constraint on industrial development, limiting the economy’s ability to generate sustainable employment and strengthen export competitiveness.The economic review study notes that continued weakness in fixed investment raises concerns that economic growth will remain driven primarily by consumption rather than by the expansion of productive capacity, with manufacturing registering a trade deficit of R310bn in the first five months of the year.“The weakness in private investment is significant because investment is not merely a source of demand but the primary mechanism through which economies expand productive capacity, build technological capabilities and shift resources into higher productivity activities,” the study reads.“Sustained underinvestment in productive assets limits the economy’s ability to upgrade industrial capabilities, deepen domestic value chains and increase value addition.“It also constrains the development of internationally competitive industries, reinforcing reliance on imported machinery, intermediate goods and final manufactured products,” it adds.The report warns that the continuing weakness in fixed investment raises concerns that economic growth will remain driven primarily by consumption rather than by the expansion of productive capacity.“Without a recovery in private-sector investment, particularly in machinery, equipment and industrial upgrading, South Africa risks further deindustrialisation, rising import dependence and slower productivity growth,” it states.Private sector investment is central to the country’s economic reform agenda, and the Reserve Bank has noted that South African corporate cash reserves, excluding financial companies, are surging towards an unprecedented R2-trillion, driven by an entrenched culture of financial conservatism and an economic environment plagued by low growth.Bank governor Lesetja Kganyago this week said the lingering effects of state capture, which hollowed out the capacity of the state, and poor performance by municipalities had stifled the private sector.“We have a large and sophisticated private sector in South Africa, and that’s the reason we are still much richer than our neighbours, even if we don’t grow. But that private sector has been in survival mode. Investment has stalled,” Kganyago said on Tuesday.“Firms are not pouring their energies into growing their South African business; the ones that are here are treading water, and the others are in places where things work, like Australia or Canada or Dubai.”Read: Lesetja Kganyago blames low growth on ‘state capture’ falloutStill, central bank data shows that corporate credit is rising as energy and water projects attract investments, and in its interim results released on Wednesday, Nedbank said corporates have healthy balance sheets with the fixed investment cycle still ahead.The National Treasury has said the public sector infrastructure requires R1.1-trillion of investment by 2030 in areas such as energy, water and sanitation, as well as transport and logistics.The private sector is expected to play an increasingly prominent role in the network industries through private sector participation in the port and rail network through concessions. The IDC report notes that investment spending on machinery and equipment, the largest component of gross fixed capital formation, weighed negatively on overall investment, declining by 3.4% quarter-on-quarter in the first three months of 2026.“This is particularly concerning given the competitiveness challenges facing many domestic industries, as investment in machinery and equipment is a key mechanism through which firms modernise production processes, adopt new technologies, improve productivity and strengthen their competitive position,” the report states.“By contrast, construction investment, the second-largest component of fixed investment, increased by 2.3%, extending its expansion to a fourth consecutive quarter, potentially an indication that the government infrastructure programme is starting to translate into project execution.”The IDC, which played a foundational role in establishing Sasol in the 1950s, also noted that South Africa’s first-quarter growth reflects pre-conflict momentum, but that recent indicators point to slowing growth as weaker confidence, higher inflation, tighter monetary conditions and infrastructure constraints weigh on activity.“Fixed investment remains the binding structural constraint, with weak private-sector investment and declining machinery and equipment spending limiting productive capacity expansion, industrial upgrading and competitiveness,” it adds.The IDC said that, overall, the analysis reinforces the urgency of the government’s Industrial Development Strategy 2026, which focuses on rebuilding productive capacity, improving competitiveness, and reversing deindustrialisation. The department of trade, industry & competition in June unveiled the strategy, drafted to boost economic growth, fix infrastructure gaps, and make manufacturing more competitive, focusing on green energy transitions, digital tech adoption, and market diversification.The IDC is still considering whether to offer further support to ArcelorMittal South Africa, which is facing increasing losses and energy costs that siphon more than R3bn from the group annually. Business Day
