Private sector investment in South Africa continued to grow at a weaker pace than last year, Finance Minister Pravin Gordhan said in parliament.

South African corporations were refraining from significant new project developments in an environment of weaker business confidence, domestic supply constraints and low demand levels.

“In contrast, gross fixed capital formation by the public sector expanded at an annual rate of 10.9% during the first half of 2012,” he said.

“Eskom, Transnet and the South African National Roads Agency Limited account for about 95% of capital spending by state-owned enterprises.” He said government spending on water, health, sanitation and road infrastructure had also picked up, supporting a nascent recovery in the construction industry.

As the economic environment strengthened, rising confidence should result in a gradual improvement in private sector gross fixed capital formation. The public sector infrastructure programme would continue to support overall investment growth over the medium term.

Household consumption growth had slowed from 5.0% in 2011, and is forecast to average 3.4% in 2012 and 3.5% in 2013 owing to sluggish job creation, elevated debt and limited growth in real disposable income. Consumer indebtedness stands at 76% of gross disposable income and the value of new unsecured credit granted to households in the second quarter of 2012 was 36% higher than during the same period in 2011.

Most of the increase reflects larger loans over longer time periods. “Currently, levels of unsecured lending do not pose a significant risk to financial stability; however, measures to improve responsible lending and borrowing are required to support access and affordability of credit,” Gordhan said.

In lower- and middle-income communities, concerns related to the garnishee system required attention, he said.

Financial sector regulators were investigating these matters. The forthcoming “twin peaks” regulatory reforms in the financial sector should help ensure better coordination among regulators.

Source: Fin24