Pieter Faber | Executive | Taxation | South African Institute of Chartered Accountants (SAICA) | mail me |
Confidence is contagious. So is lack of confidence
– Vince Lombardy
Business confidence reflects the optimism or pessimism of businesses regarding future economic conditions. The ‘business confidence’ effect often drives their willingness to invest, hire employees and expand operations.
Business confidence and economic growth
A report by United Nations Trade and Development (UNCTAD) highlights factors shaping investment decisions beyond economic determinants. These factors include trends in global value chains, technological advancements, geopolitical dynamics and environmental concerns.
The Minister of Finance has repeatedly admitted that economic growth is the only solution to fiscal challenges and spending ambitions. However, economic policy and its implementation over the last 15 years have led some to believe that having no plan seems to be the plan. Similarly, various Ministers acknowledge that infrastructure sustains the economy. South Africa’s ageing, stolen and failing infrastructure has left the economy on life support.
The National Development Plan aimed for gross fixed capital formation of 30% of GDP by 2030. This goal requires R2 trillion based on 2023 GDP figures. The 2024 Budget reveals that the country remains below 15%. It has been continuously declining since South Africa changed its economic and fiscal policies in 2009.
Does the data confirm a correlation between business confidence and investment appetite, as noted by UNCTAD?
The South African Chamber of Commerce and Industry (SACCI) Business Confidence Index shows that confidence increased steadily after democracy began. Businesses benefited from a stable and positive economic and fiscal policy. However, the 2007 global economic crisis and the political shift in economic and fiscal policy in 2009 severely impacted business confidence.
Business confidence depends on context
The COVID-19 pandemic in 2020 further exacerbated this decline. Not only capital investment but also economic growth has tracked business confidence trends. IMF economic growth data between 1994 and 2024 reflects a similar pattern. Although confidence and GDP growth took time to stabilise, by 2000 all metrics showed improvement.
South Africa outperformed world averages and advanced economies. However, after 2007-2009, all three indicators declined sharply. Since then, South Africa has unfortunately remained a perennial underachiever in GDP terms.
The 2025 State of the Nation Address (SONA) promised R940 billion for infrastructure over three years. Business confidence depends on context.
For instance, the 2019 National Water & Sanitation Master Plan estimated a funding requirement of R25 billion for water upgrade backlogs. It also projected R332 billion for failing municipal water infrastructure. Today, these estimates are significantly understated.
Johannesburg alone requires R221 billion to repair and upgrade existing infrastructure. This amount does not even cover the cost of adding to or expanding its current inadequate infrastructure.
Boosting business confidence
To boost business confidence, the government must provide realistic commitments instead of token promises.
Between 1995 and 2007, economic success was not just about spending money to improve business confidence. In fact, it was the opposite. Success during this period resulted from prudent governance and fiscal responsibility. The government lived within its means rather than accumulating excessive debt.
Business confidence continued to decline after 2009, despite the government’s adoption of debt-financed anti-cyclical spending measures.
COVID-19 further expanded this debt-driven approach in 2020. What mattered was not just how much the government spent but also what it spent the money on. Even the private sector began disinvesting from capital infrastructure.
Despite consistently growing tax revenues, the government started disinvesting from infrastructure in 2009. It shifted spending toward operational costs and social expenses.
To put this into context, the budget of 1994 was R105 billion. In comparison, the 2024 budget revenue of R1.84 trillion equals R559 billion in 1994 terms. This represents a fivefold increase. South Africa now faces another economic crossroads.
In conclusion
Leaders must make difficult, long-term economic decisions instead of politically expedient ones. The situation may be even worse than in 1994.
The global value chain is in decline. Technological advancements remain unequal, and geopolitical tensions continue to rise. Environmental concerns are regressing, and nationalism is increasing. Meanwhile, South Africa struggles with a low-skilled workforce and a 43% unemployment rate. A large portion of the population remains dependent on social spending.
Rebuilding the economy will require compromises and delivery by both government and business. However, the government must take the first steps to restore business confidence. The country must not ignore transgressors but should focus on building an inclusive future now. It will not be easy.
The wealthy may need to contribute more through higher taxes. Meanwhile, those dependent on social benefits must gradually reduce their reliance on unsustainable support.
Business confidence must navigate these challenges. Locally, businesses and citizens need to trust in a government that upholds fiscal discipline and sustainable spending. Leadership must prevent further economic risks while restoring the country’s economic foundation.
