Advancing gross fixed capital formation (investment) paradigm in the Eastern Cape province of South Africa: historical trends and prospects.

Abstract

Current rates of investment in the Eastern Cape Province of South Africa are insufficient to drive substantial economic growth. These rates have not changed significantly from 1995 to date. This study examined the reasons for low investment rates in the Eastern Cape Province in the post-democratic era by both the private and public sectors and explored the hindrances to attracting investment. Its examination of trends and prospects informed the study’s recommendations to address the current situation. A mixed methods research methodology that incorporated econometrics was employed to calculate the investment gap and the investment required to close this gap. The quantitative research analysis results indicated that; there is an investment gap, low investment and a dire lack of infrastructure, which discourages investment in rural and urban areas in the Eastern Cape. The qualitative research analysis results indicated that: the province lacks adequate infrastructure, an integrated investment model and strategy as well as poor political leadership at provincial and local levels were significant contributors to low investment rates. The econometrics analysis, indicated that an investment rate of 11.05% of the province’s Gross Domestic Product is required to close the current investment gap. Some policy implications of these three results are that in advancing investment in the province, the foremost priority should be infrastructure investment which must be underpinned by intelligent public sector investment. Amongst other priorities there is an urgent need to strengthen the province’s political leadership and administration.