By: Mamello Matikinca-Ngwenya, Siphamandla Mkhwanazi, Thanda Sithole, Koketso Mano
Fixed investment - the missing piece for South Africa's growth recovery
Business confidence and private sector fixed investment remain subdued, constraining economic growth momentum. At 39 index points, business confidence remains depressed despite ongoing reform efforts, signalling elevated uncertainty and persistent challenges in local government service delivery.
Following a robust 6.5% rebound in private sector fixed investment (flows) in 2022, after contractions of 14.6% in 2020 and 0.6% in 2021, investment activity has since weakened. Fixed investment declined markedly by 4.2% in 2024, following a moderate 2.6% gain in 2023, as the energy crisis eased and early renewable energy-related investments tapered off. This weakness persisted into the first half of 2025, with private- sector investment down 3.2% compared to the corresponding period in 2024. After peaking at 13.5% of GDP in 2008, private sector fixed investment has softened, falling below 11% of GDP in 2020 and remaining around that level since, well below the 20%
A breakdown across investment asset types provides a broader perspective. The decline is most pronounced in residential and commercial property. Residential property investment fell from a peak of 3.4% of GDP in 2006 to about 1.6% recently, while commercial property investment declined from 1.3% of GDP in 2008 to just 0.3%. Investment in transport equipment (including military transport equipment) also decreased, from 2.1% of GDP in 2007/08 to about 1.2% recently. Meanwhile, investment in machinery and other equipment (including ICT-related assets) has remained broadly flat (averaging 4.7% of GDP since 2010) but is still below its 2008 peak of 5.7% of GDP.
A notable exception is investment in computer software (including databases), which, though still modest, has risen steadily to 0.7% of GDP, up from just 0.1% in 2008. In real terms, investment in computer software amounted to R32.9 billion in 2024, compared to R3.9 billion in 2008. This underscores the growing focus by businesses on modernising IT systems, enhancing digital resilience, and mitigating cyber risks amid rising technological dependence.
However, a key concern is the persistent weakness in research and development (R&D) investment, which is critical for innovation, productivity growth, and long-term competitiveness. R&D expenditure has declined to just 0.2% of GDP, half the pre-2008 global financial crisis level of 0.4%. In real terms, R&D investment fell from R16.1 billion in 2007 to R11.5 billion in 2024. Given the rise in global protectionism, rapid technological advancement, and the strategic need to expand high-value manufacturing exports, a renewed focus on R&D investment will be essential to enhance competitiveness, encourage innovation, and support sustainable long-term growth.
Private sector investment remains a critical driver of growth, employment, and inequality reduction. Restoring investor confidence, accelerating infrastructure delivery, and deepening structural reforms to strengthen policy credibility will be essential in unlocking a durable investment recovery and lifting the economy onto a higher growth path. In this regard, the continued focus of the Operation Vulindlela (OV) initiative on driving reform implementation under OV 2.0 remains fundamental to sustaining momentum and improving the investment climate.
Week in review
The Manufacturing PMI fell by 1.6 points to 49.2 in October, slipping back into contractionary territory. Sector activity remained subdued, with both domestic and export demand under pressure, reflected in a 3.9 point drop to 48.9 in new sales orders. Business activity retreated into contractionary territory for a ninth time this year, reversing some gains recorded in the previous month. Supplier deliveries also declined, though it remains unclear whether this drop stems from weaker new orders or recent reports of improved port performance in KwaZulu-Natal. Despite these challenges, the employment index rose by 2.2 points to 45.1. However, demand continues to be subdued, and activity remains volatile. Considering this, manufacturers remain hesitant to expand staffing levels. The index tracking expected business conditions over the next six months fell from 49.2 to 46.1, reflecting manufacturers' growing unease about near- term operating conditions. Business confidence remains low as the sector grapples with external trade constraints, supply-side uncertainties, and persistent cost volatility.
New vehicle sale volumes increased by 16.0% y/y in October, reaching 55 960 units, the highest since early 2015, up from 54 683 units in September. The increase was driven by new commercial vehicle sales which expanded by 19.1% to 16 346 units. New passenger car sales increased by 14.8% to 39 610 units. Within the commercial segment, light commercial vehicles rose by 23.9%, heavy commercial vehicles increased by 6.1%, and medium commercial vehicles increased significantly by 9.3% after a 2.4% decline in September. By contrast, bus sales declined by 3.8% while extra-heavy commercial vehicles remained under pressure, declining by 3.6%. Sustained sales momentum reflects the combined effects of an ongoing replacement cycle, low and stable inflation, interest rate cuts, as well as resilient demand in the entry-level and affordable brands.
Electricity production declined by 5.7% y/y in September, following a 3.1% decline in August. On a seasonally adjusted basis, generation declined by 1.2% m/m in September, after a 1.1% m/m decline in August. Looking at the broader trend, electricity generation declined by 1.5% in the three months ending September 2025, compared with the previous three-month period, pointing to a drag on 3Q25 GDP growth.
Week ahead
On Tuesday, the Quarterly Labour Force Survey (QLFS) for 3Q25 will be released. In 2Q25, QLFS data showed an increase of 19 236 q/q in total employment, following a decrease of 290 575 q/q in the previous quarter. However, compared to a year ago, employment improved by 154 169, bringing total employment to 16 806 502. The level of unemployment increased by 139 751 q/q (but lower by 16 396 y/y), bringing the total number of unemployed individuals to 8 367 429. As a result, the official unemployment rate increased by 0.3-percentage points (ppts) to 33.2%.
Also on Tuesday, manufacturing production data for September will be released. Manufacturing output declined by 1.5% y/y in August, following a 1.3% decline in July. The largest drag came from the basic iron and steel, non-ferrous metals, and machinery division (-5.9%, contributing -1.3ppts), followed by food and beverages (-3.0%, -0.7ppts). However, seasonally adjusted output rose by 0.4% m/m, partially offsetting declines of -0.8% in July and -0.1% in June.
On Thursday, mining production for September will be released. Mining production (not seasonally adjusted) declined by 0.2% y/y in August, down from 5.1% y/y in July. Seasonally adjusted output decreased by 1.2% m/m, reversing the 1.2% monthly gain in July. Nonetheless, output rose by 3% in the three months leading up to August, suggesting continued positive momentum in the third quarter of 2025. However, year-to-date output remains 1.5% lower than the corresponding period in 2024, underscoring the impact of subdued economic growth and heightened global trade uncertainty.
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