Government’s plans for SA infrastructure development

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DUDUZILE RAMELA: Over the medium term public spending on infrastructure will exceed R1 trillion. Of that R577.4 billion will be spent by state-owned companies and other public entities, R217.8 billion by provinces and R205.7 billion by municipalities.

Read: SOEs rack up losses of R172bn in five years – National Treasury

Now, by sectors, transport and logistics make up the largest share.

Dr Zeph Nhleko is the chief economist at the Development Bank of Southern Africa, or DBSA. He joins us now to take a look at this. Dr Nhleko, sir, thank you very much for your time.

Perhaps we can start the conversation with an appreciation that this one word ‘infrastructure’ is quite layered. And with that said, let’s start with a review of how we have been doing on infrastructure spend in the country, perhaps drawing on the last five years. Is the return on investment visible to the naked eye?

ZEPH NHLEKO: Yes. Good evening and thank you for having us. No, the process and the pace of investment has not been what we are looking for.

If you look at the past, the average investment over the past 10 years has been around 14% of GDP. Now, South Africa is classified as an upper-income middle country and if you look at our peers, they are doing 30-35% to GDP in terms of investment.

So no, we have been we have been far below where we are. But the budget, you were beginning to mention the numbers, starts to point to the areas that we should focus on in terms of reimagining and resetting the trajectory for investment going forward.

Read:
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DUDUZILE RAMELA: If in the last 10 years that investment is not visible to the naked eye, what then lies between investment and delivery – more so in a country that has a rural makeup where children are still crossing rivers to go to school, for instance?

ZEPH NHLEKO: Yes, there are a number of issues, and I’m sure you’ve seen the literature everywhere.

But the key issue here has been actual investment; putting capital on the ground.

And if you look at the reforms that are proposed – this started last year where the government was saying, first of all, we need to make sure that we mobilise private-sector participation into this space. In other words, the fiscus is not going to be able to carry this financial load on its own, and that’s understandable.

But secondly, we need to enhance public finance spending to make sure that if we allocate funds in the budget, these funds find their way into the ground, where the infrastructure is needed.

In other words, we must make sure that the public-sector delivery machine works.

And if you look at the reforms that are being proposed here, you begin to see the directionality of this thing.

For example, the regulations around the public-private partnerships were one of the hindrances for us to do this.

If you look at the municipal capability and ability to spend money, this is one of the areas that has been hindering us.

And then if you look at how the government can actually provide guarantees to people who want to invest in infrastructure, this is another area.

So all of these things are now being reformed to enable participation from both the public and private sectors.

And so entities like us, the DBSA, whose mandate is actually to promote economic development, growth and capacity building, find it very useful that the government is taking this direction.

DUDUZILE RAMELA: Then we have the budget facility for infrastructure that the minister spoke about [on Wednesday], saying that this facility for infrastructure continues to play a pivotal role in enabling funding of strategic infrastructure projects, going further to say as part of efforts to position infrastructure as an investable asset class, government issued an infrastructure bond in 2025, raising R11.8 billion to support its contribution in Budget Facility for Infrastructure [BFI] approved projects. What does this mean, please?

ZEPH NHLEKO: You could see the issue of this bond signalled a very healthy appetite for investment into the infrastructure space.

So it provides a very good platform to enable the government to raise funds to put into infrastructure.

But another important reform that the government has done along those lines is to try and consolidate some of those entities that are in the financial space.

For example, you will recall that here we were incubating the infrastructure fund. So Treasury is combining that with the parts of the G-Tech entities to form an infrastructure finance machinery that can finance our infrastructure going forward.

DUDUZILE RAMELA: On transport, water and energy – and please do advise if this is something that you actually look at as well – the Passenger Rail Agency of South Africa will continue implementing, we heard, its corridors recovery programme and modernising core infrastructure to rebuild a reliable, affordable rail service for commuters.

We also understand there’s a company that has been contracted to secure some 39 locomotives a year. There are a number of locomotives in the Johannesburg CBD, there by Bree Street taxi rank, and you can see them. If you go to Pretoria, just behind Stats SA, there are also a number of locomotives – dilapidated, but those ones at Bree not so much.

What about rehabilitation projects where we can rehabilitate those? What’s the story of those locomotives that just sit idly there? When you walk past them, they actually look usable. Maybe they could do with some painting, some doing this or whatever, instead of spending money on more things. Can we not fix what we already have?

ZEPH NHLEKO: Yes, indeed. And you raise an important point on infrastructure maintenance.

This is an important area because a big chunk of the problem is that the infrastructure is not maintained as it is supposed to be.

A study that we did recently here at the DBSA shows that something like, 40%, 50% of the challenge is because of maintenance.

So it’s not just on passenger transport. It’s across all infrastructure types, passenger freight, roads, rail, water, everything.

So we need to get into the system and culture of maintaining our infrastructure to ensure that you don’t need a vast amount to rebuild or redo the infrastructure. If you if you maintain [things] properly, this is fine.

We know the reasons, because we haven’t been set correctly. So the reforms that are being done, particularly at the municipal level, begin to bring that culture into the fray.

DUDUZILE RAMELA: Sir, thank you very much for your contribution this evening. Dr Zepho Nhleko is the chief economist at the Development Bank of Southern Africa.

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