Thobeka Ncanywa, Itumeleng P. Mongale, and Miglas P. Mphela ©Journal of Global Business and Technology, Volume 13, Number 2, Fall 2017 49 DETERMINANTS OF INVESTMENT ACTIVITY IN SOUTH AFRICA Thobeka Ncanywa, Itumeleng P. Mongale, and Miglas P. Mphela ABSTRACT Investment activities can promote technical progress through the introduction of new technology and can reduce poverty by creating increased rates of employment. In the long run, through the production process, investment activities can create new capital goods. Investment ensures growing capital stock in the country because investing in fixed capital stock can accelerate the economic growth. Gross Fixed Capital Formation (GFCF) is commonly known as the net investment, refers to the total fixed amount of capital accumulated. This paper seeks to examine the determinants of investment activity in South Africa. It uses the Johansen Cointegration and Vector Error Correction model; and, it finds the long- and short-run relationship on the time series data. It establishes that there is positive relationship between economic growth, interest rate, inflation and investment. However, taxation and investment are negatively related. This indicates that investment activity can be explained by tax, economic growth, interest rates and inflation. The paper recommends low taxation, growing economy, increasing availability of credit to boost investment activity in South Africa. Keywords: Gross fixed capital formation, economic growth, taxation, interest rates, inflation INTRODUCTION As one of the important macroeconomic variables, investment can ensure infrastructure development and growth in the economy by raising the productive capacity (Fedderke, Perkins & Luis, 2001; Cheteni, 2011; Ugwuegbe & Uruakpa, 2013). Investment activities can promote technical progress through the introduction of new technology and can reduce poverty through an increase in the level of employment. In the long run, through the production process, investment activities can create new capital goods. Majeed & Khan (2008) and Gkionis et al. (2015) indicate that to ensure growing capital stock in the country there must be higher rate of investment since investing in fixed capital stock can accelerate the economic growth. Gross Fixed Capital Formation (GFCF) is commonly known as the net investment, refers to the total fixed amount of the capital accumulated. It measures the capital stock; in the measurement it excludes land purchase but includes the disposal of fixed assets. Meaning increasing capital stock, excluding the land purchase and less disposable of fixed assets. As a result it can therefore be used as a measure of investment activity of a country (Mishkin, 2016). During the 1980s and the early 1990s South Africa experienced a low GFCF due to civil conflicts and the apartheid regime (Fedderke, 2005). GFCF increased from R51 289 million in 1994 to R74 018 million during the fourth quarter of 1997. On the other hand, during the first quarter of 1998 the investment decreased ________________________ Dr. Thobeka Ncanywa is a senior lecturer and HOD of the Department of Economics at the University of Limpopo. She holds a PhD in Economics from the University of Fort Hare, which was conferred in collaboration with the University of Cape Town. Dr Ncanywa research subjects include financial markets, microeconomics, macroeconomics, public economics, monetary economics and international trade. Professor Itumeleng Pleasure Mongale is an Associate Professor in the Department of Economics at the University of Limpopo and a part-time lecturer at the Turfloop Graduate School of Leadership. Professor Mongale holds a PhD in Economics from the North West University in South Africa. His research interests include macroeconomics, monetary policy and econometrics, particularly time series analysis. He has presented research papers at international and national conferences; and, has published a significant number of journal articles and a book chapter. Mr. Miglas Phuti Mphela is a full-time Master’s candidate in the Department of Economics at the University of Limpopo, but he holds a Masters of Business Administration from the Turfloop Graduate School of Leadership at the same university. His research interest is in time series analysis, especially macroeconomic analysis.