Much progress made ‘behind the scenes’ on infrastructure projects

2014-02-27 00:00

BUSINESS and economic commentators have complained that the R827 billion infrastructure projects announced in the 2012 Budget have got off to a slow start, with little of the anticipated benefits to the economy.

But, although it may not seem like it to the man on the street, a great deal of work has been done “behind the scenes” on the projects, said corporate finance advisory leader — Africa, at Deloitte in Durban, Andre Pottas.

The 18 Strategic Infrastructure Projects (Sips) announced in 2012 were proposed to stimulate job creation, eliminate infrastructure and transport backlogs, and lower costs for business by making the economy more efficient.

“The preparation phase for these mega-projects is rightly lengthy, but means that the general public does not see any activity on the ground for usually two to three years after a project is announced. This is certainly not unique to South Africa,” said Pottas.

The time lag between project concepts, feasibility, design, fundraising and implementation is often long and can be compounded by the lengthy procurement processes, such as to appoint transaction advisers and contractors.

The Sips took some time to appoint project management officers (PMOs), which have now only properly been in place for six to 10 months, said Pottas.

“As far as we are aware, the PMOs have focused on gathering information until now … It is possible we will see more activity … after the election,” he said.

Pottas said generally, infrastructure adds R1,40 to gross domestic product for each rand spent, and is acknowledged globally to be the best use of capital to drive sustainable economic growth.

Some infrastructure projects have progressed quite far, such as in the renewable energy sector where a number of projects are ready to be commissioned.

Also not unique to South Africa is that the government does not have enough borrowing power to fund all the projects.

The slowdown in the economy in the past five years exacerbates this difficulty.

“This is why there is an increasing role to involve the private sector in the funding, delivery, operation and maintenance of public infrastructure,” said Pottas.

Nevertheless, government and the public will still need to pay for these projects, either directly by the public, such as through toll fees, or by shifting how government pays for it to a different method or timeline, such as through concessioning or public and private sector partnerships.

Pottas said the Presidential Infrastructure Commission has communicated very little to industry stakeholders around timelines and how the projects will be funded or developed.

“We have had a number of queries from international players who are interested in establishing a presence in South Africa off the back of the Sips programme, but they are frustrated by the level of disclosure and are unable to commit resources in the absence of timelines and values,” said Pottas.

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