South Africa will have an infrastructure investment shortfall of 4.8 trillion rand by 2030 from the desired target in the National Development Plan (NDP) if the country does not increase its infrastructure investment.
This is according to Dr Herbert Joynt, Head of Infrastructure Program at the South African Center of Excellence, who reiterated that the desired target in the NDP is for gross fixed capital formation to be 30% of GDP by 2030.
In a presentation and progress report on the rollout of South Africa’s infrastructure investment plan last week, Joint told the National Council of Provinces Select Committee that this infrastructure investment shortfall forecast is based on existing investment patterns and what the current target should be to achieve the GDP gross domestic product target. accumulation of fixed capital.
The government in July 2021 gazetted 62 strategic integrated projects (SIPs) worth R340 billion to boost South Africa’s economic recovery from COVID-19.
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Following this, in October 2021 the government unveiled a pipeline of 55 new catalytic infrastructure projects from various sectors worth around R595 billion, which are estimated to create 538,500 jobs.
However, at the time the government admitted there was a funding shortfall of about R441 billion for the 55 new projects brought to market.
Joynt said gross capital formation has been above 20% in the recent past but is currently at 14.3%, although the trend line is starting to move up again.
“It’s a huge goal, but with all the investment in infrastructure [planned] will certainly increase and contribute to the growth of gross fixed capital formation,” he said.
Billions to trillions
Joynt said it was also clear from a government spending perspective that national, provincial, local governments, state-owned enterprises (SOEs) and public-private partnerships (PPPs) would have to contribute about R600 billion in terms of existing spending. but “will also need to increase this component to 1.6 trillion rand going forward”.
“So it’s quite a challenge ahead, but that’s one of the reasons why South Africa’s infrastructure department, together with the Office of Infrastructure and Investment in the Presidency, has also developed a country investment strategy to make sure we attract more infrastructure and other investments into the country.”
Joynt said it is quite clear that there is some underspending in terms of approved budgets, stressing that it is not always the case that the money is not available.
He said public investment in infrastructure used to exceed 7% of GDP, but now stands at about 3.3%, while the NDP’s target is 10%.
“So, again, we’re well below target,” he said.
Public infrastructure wallet
Joynt said it is clear from the Medium Term Expenditure Framework (MTEF) and budget allocations that local and provincial governments, as well as state-owned enterprises, own the bulk of the public infrastructure purse.
Looking ahead in terms of MTEF estimates, it is also clear that these costs will certainly increase “as we look towards the next three years in the MTEF”.
He said there was little sign of growth in gross fixed capital formation, especially in 2022 (it grew by 3.6%), warning that, however, significant investment would be needed to achieve the country’s desired goals.
“But we are striving and developing different approaches, and the country’s Investment Strategy will help us with that as well.”
Joynt added that it is clear from the first quarter GDP data that the construction industry is not doing well. He attributed this to South Africa’s negative economic growth in the first quarter and low levels of housing and construction work.
No “Main Custodian”
The Head of Infrastructure and Investments at the Presidency, Dr Kgasientsho Ramakgopa stressed that his office is not the main custodian of the planned infrastructure investment projects.
He said these projects are still under the control of owners such as the Ministry of Transport.
“Although we have a responsibility to report them [projects]the implementation of procurement, responsibility for ensuring the participation of local communities, the pace of delivery and the quality of delivery remain with the department.
“This is an area where we believe we should improve the coordination of these projects,” Ramakgopa said.
He referred to the cancellation by the South African National Roads Agency (Sanral) of projects worth more than 16 billion rand a few months ago.
“This is delaying the infrastructure investment program.
“Although the office has been successful in raising money in the debt capital market, procurement is still elsewhere.
“This is something that needs attention going forward,” he said.
Where are things now?
Tshepa Chuene, a member of the Presidential Coordinating Commission on Infrastructure, said the projects are under development in technical working groups.
These groups review the business case for projects to:
- Make sure the finances are trustworthy;
- That the management structure has sufficient capacity to implement projects without unnecessary delays;
- Identify any project risks and issues; and
- Help where there is constipation.
Chuene said 328 projects are under development, most of which are in the energy sector, followed by human settlements, transport and social infrastructure.
The Big Milestone goal.
He announced that it was deemed possible for the National Department of Public Works to implement water and electricity efficiency measures.
This program involves the installation of photovoltaic (PV) and water conservation measures in the department’s national portfolio of public buildings.
Cheune said the first request for proposals (RFP) for the program is scheduled to be released by the end of this month.
“This is an important milestone that we are targeting in the current term to make sure there is a request for proposals to get the private sector involved,” he said.
