How private sector can help with SA’s infrastructure

South Africa’s infrastructure spend per day should almost double to reach the goal set in the National Development Plan to increase gross fixed capital formation to 30% of gross domestic product (GDP) to create the platform for economic growth and improved service delivery that the country needs.

This is one of the conclusions in the Infrastructure for South Africa report commissioned by Business Leadership South Africa (BLSA) and compiled by Intellidex to support government’s efforts to drive infrastructure investment.

“We all know that infrastructure investment is key to unlocking our economic potential, yet the reality is that we have been falling short of our own goals for greater investment. The devil is in the details and this report provides some hard truths about the situation we face and emphasises that we need key policy reforms to unlock infrastructure investment,” Busi Mavuso, CEO of BLSA said.

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She pointed out that there is a lot that the private sector can do, from funding and building infrastructure to operating it. “We want to work with the public sector to achieve far greater investment levels. This report is a contribution to identifying and removing constraints that are holding us back.”

Reaching the 30% goal would require daily infrastructure spending to increase from about R2.5 billion to R4.1-billion, Stuart Theobald, chairman of Intellidex, said at the launch of the report.

We must maximise the social and economic value that infrastructure provides for people by planning for the full lifetime of infrastructure, striking the right balance to deliver on policy priorities and bringing public and private partners together to maximise value for money, he said.

Increases in infrastructure investment

According to Theobald, this will require material increases in infrastructure investment across all delivery mechanisms, including:

• all three spheres of government investing on-budget in social infrastructure such as local roads, schools and hospitals
• SOE spending on economic infrastructure such as ports, power stations, national roads and railways
• more private investment in machinery, mining and information and communication technology (ICT)
• increased use of public-private partnerships (PPPs) to deliver infrastructure, such as toll roads, prisons and increased electricity generation by independent power producers (IPPs).

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He said that an increase in on-Budget infrastructure spending will depend on tackling the skills deficit in municipal and provincial departments to ensure the proposed rotation of fiscal resources away from consumption and towards investment.

Building capacity

Building capacity is also important, because the decrease in technical and financial skills in the public sector was aggravated by complex public procurement processes, due to corruption and waste, he said.

The decline in infrastructure spending was largely due to continuous contraction in public sector and SOE investment that fell from 7.3% of GDP in 2015 to 5.4% in 2019.

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Private sector investment averaged 12.7% of GDP over the past five years, but private investment was constrained due to weak economic growth, low business confidence, regulatory constraints and policy uncertainty.

According to the report, the number of professionally registered engineering staff at municipalities decreased from 455 in the first decade of the century to 294 in the past decade. The average age of these engineers fell from 46 to 38. Only 30% of registered engineers currently work in the public sector from 70% before.

Although the only sustainable solution is in rebuilding public sector capacity, the private sector can offer immediate support by injecting technical skills to help improve project planning and delivery, Theobald said.

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Infrastructure Fund

The new Infrastructure Fund established by government and the identification of Strategic Infrastructure Projects will help a little to start high-impact projects and create the political will needed to drive PPPs.

The road ahead

Mavuso said the BLSA will now meet with the Presidency, the department of public works and infrastructure and the Development Bank to emphasise the willingness of the private sector to play its part in unlocking far higher levels of infrastructure investment.

The report pointed out several gaps in capacity in the public sector that the private sector could proactively solve. These constraints are project design, funding, policy-led infrastructure and economic impact assessment.

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