Policy Paper (Interest) 07

We explore changing conditions in South African capital markets. Noteworthy is the evidence of strong restructuring in the market during the 1990’s. Whereas the 1970’s and 1980’s showed the strongest investment performance amongst primary commodities and sectors with strong parastatal involvement, the highest investment rates of the 1990’s have been associated with the manufacturing industry. We show that the real user cost of capital and capital productivity contribute plausible determinants of investment rates in South Africa. The extent to which market forces are allowed to bring in line marginal cost and marginal return on capital, appears to influence the sustainability of investment.