Dawie Roodt has a blunt way of putting it. South Africa’s financial markets are performing well, he says, but step outside the bond market and equity exchanges and the picture changes fast.
Roodt, chief economist at Efficient Group, draws a sharp line between money moving through financial instruments and money flowing into the productive economy. “When you talk about financial instruments like the bond market and equities, that’s actually quite good. We have very well-managed and solid financial markets,” he told Cape Business News. The contrast with physical investment is stark. “When you talk about fixed capital, like factories and so on, that’s certainly very bad.”
That gap matters. It reveals what is actually holding back investment decisions in corporate boardrooms across the country, and it has little to do with the cost of borrowing.
The South African Reserve Bank recently held the repo rate steady at 7%. Economists broadly agree, though, that monetary policy alone cannot revive private-sector capital spending. The real obstacles run deeper, into the structure of the economy and the stability of the operating environment that businesses must navigate every day.
Roodt identifies governance failures and policy uncertainty as the primary weights on investor confidence. Companies evaluating expansion projects must weigh far more than borrowing costs. Boards assess policy certainty, regulatory stability, the reliability of municipal services, logistics infrastructure, energy security and the overall cost of doing business. Weaknesses across those areas raise project risk and can delay or redirect capital investment entirely.
“The negative factors have to do mostly with the wrong macroeconomic policies and, of course, incompetence and corruption and crime. We’ve also got policies like expropriation,” Roodt said. He characterizes the cumulative effect as a fundamental governance problem, one that no adjustment to monetary policy can fix.
Interest rates do matter, he acknowledges. “Interest rates certainly affect business. In the short term, people are concerned about interest rates.” But he does not regard them as the principal obstacle. “Interest rates are a very important factor, but relatively high interest rates are only temporary and are likely to come down.” Rate cuts will have limited impact if businesses remain uncertain about the country’s long-term operating environment.
The investment hesitation is not uniform. Financial services continue to attract capital, reflecting confidence in South Africa’s banking system and capital markets. “The financial sector is a sector that people like to invest in because it’s part of the service industry,” Roodt noted.
Mining presents a starkly different picture. Despite South Africa’s position as one of the world’s leading producers of several critical minerals, investment in new mining projects has been hampered by infrastructure bottlenecks, regulatory uncertainty and operational challenges. “Mining is an obvious place where people would like to invest, but they can’t because of all sorts of obstacles there.”
By contrast, the backdrop for decisions across most other sectors remains difficult. South African companies are weighing capital allocation against modest economic growth, infrastructure constraints and persistent policy uncertainty. For Roodt, the dominant investment risk is ultimately political. “The major risk has to do with politics. It’s about government that is incompetent and destructive.”
Until that underlying uncertainty shifts, the gap between resilient financial markets and weak fixed investment is likely to persist. The question hanging over the productive economy is not where interest rates will settle, but whether the governance conditions that drive boardroom hesitation will change before another cycle of potential investment passes South Africa by.