Government and private sector announce R790bn in capital expenditure projects

South Africa’s government and private sector have jointly announced capital expenditure projects valued at more than R790 billion in the first half of 2024.

This is a significant jump from the R193.2 billion in 2023, according to the Nedbank Capital Expenditure Project Listing for 2024.

The project listing – one of Nedbank’s flagship publications – records the major capital projects undertaken within South Africa’s borders.

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It only includes projects that have been announced to the public and only those of R20 million or more.

Nedbank says despite the jump in announced project plans, fixed capital formation for 2024 will decline by 2.5% – down from 4.2% in 2023.

Weak state of the economy 

Crystal Huntley, economist at Nedbank and one of the authors of the Capital Expenditure Project Listing, told Moneyweb the expected decline for the whole of 2024 can be ascribed to a generally weak state of the South African economy.

“Also, there is usually a lag between project announcements and actual implementation,” she points out.

Nedbank expects the impact of the pickup in capital expenditure plans in 2024 to materialise in 2025.

“Even so, the risks to the outlook remain to the downside, given a fragile global economy, and delays in local economic reforms, which could result in cancellations or postponements in implementing some of the announced project plans,” it says.

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Jason Lightfoot, portfolio manager of the Futuregrowth Infrastructure and Development Bond Fund, says the jump in announced projects noted in the listing is positive. He remains sceptical about the actual implementation though.

“The government is great at making plans, but it comes down to execution. The proof will be whether or not these plans materialise.”

Nevertheless, there is now greater optimism among investors about the new government of national Unity (GNU) and its ability to implement structural reforms to the economy.

“If the positive sentiment sticks and takes root, we’ll start seeing the private sector, which has held back on expansion projects, investing more, rather than just maintaining current production levels,” Huntley notes.

Project announcements per sector

In its latest project listing, Nedbank finds that the government has replaced the private sector as the major driver of capital expenditure plans. It announced plans amounting to an annualised R393.3 billion, which makes up 50% of all new projects announced in the first half of the year.

“These include a public housing and community development programmes of R104 billion, and R36 billion for phase 2 of the Rooiwal wastewater project,” Nedbank says.

Public corporations (state-owned entities such as Eskom and Transnet) announced projects worth R194.4 billion, which accounts for 24% of the total – significantly higher than R34.7 billion in 2023.

These project announcements include energy infrastructure, refurbishments of health facilities, airport infrastructure, special economic zones, road rehabilitation, and water desalination plants.

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However, the amount still falls below the R219 billion worth of projects announced in 2021, which involved large undertakings by Eskom, the Passenger Rail Agency of South Africa (Prasa) and the South African National Roads Agency (Sanral).

The private sector’s announced plans account for 26% of the value of announced projects, totalling R206 billion.

The Bankenveld District City development is the largest project planned by the private sector, valued at R18 billion. It is developed by JSE-listed Calgro M3 and Eris Property Group. This is a mixed-use development, consisting of residential, commercial, retail, industrial, educational, and healthcare components, and situated between Woodmead and Marlboro in Johannesburg.

Renewable energy investments 

Nedbank says around R113 billion of the announcements by the private sector are energy-related, with the Risk Mitigation Independent Power Producer Procurement Programme (RMIPPPP) accounting for 69% of this total.

“This indicates that the country’s shift to renewable energy continues and remains an integral driver of fixed investment,” Nedbank says.

Lightfoot points out that the private sector’s significant spending on renewable energy projects could be constrained by the lack of grid capacity.

Years of non-investment in the electricity grid is hampering efforts to add renewable energy to South Africa’s energy supply.

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In 2022, inadequate grid capacity in the Northern, Western and Eastern Cape (the regions with the best solar and wind resources) meant that renewable energy projects in these areas fell by the wayside, as they could not be connected to the national grid.

“The Independent Power Producers programme is not taking off as well as it should due to this inherent lack of grid capacity,” says Lightfoot.

“The recent announcements of new rounds of renewable energy projects is great, but let’s first sort out the grid.”

This article was republished from Moneyweb. Read the original here