Infrastructure projects are no cure for ailing SA economy

Expenditure on infrastructure in South Africa has declined significantly over the past few years in order to make up for gaps caused by lower-than-expected tax collection and policy changes such as free tertiary education. Picture: Supplied
Expenditure on infrastructure in South Africa has declined significantly over the past few years in order to make up for gaps caused by lower-than-expected tax collection and policy changes such as free tertiary education. Picture: Supplied

Infrastructure projects are not a miracle cure that will put South Africa’s sick economy back on to the road to recovery.

Infrastructure investments of more than R2.3 trillion that government hopes to realise over the next 10 years are less than what’s been spent historically on buildings, roads and other projects, says Lullu Krugel, chief economist at PwC.

At an infrastructure symposium this week, President Cyril Ramaphosa announced that 88 of about 276 projects were ready for investment.

R2.3 trillion sounds like a lot of money, but divide it by 10 years and it’s actually far less than what’s been spent on infrastructure in the past. We’ll have to spend twice as much if we want to catch up
Lullu Krugel

Expenditure on infrastructure in South Africa has declined significantly over the past few years in order to make up for gaps caused by lower-than-expected tax collection and policy changes such as free tertiary education.

According to the national development plan, the target for infrastructure expenditure was 10% of GDP per year. However, according to Business Leadership South Africa, in reality, it was half of that.

“R2.3 trillion sounds like a lot of money, but divide it by 10 years and it’s actually far less than what’s been spent on infrastructure in the past. We’ll have to spend twice as much if we want to catch up,” says Krugel.

She adds that infrastructure is something the government “likes to hide behind” when there is trouble and it wants to rebuild the economy.

Infrastructure

In 2012, then president Jacob Zuma announced that R4 trillion would be spent on 18 “strategic infrastructure projects” over a period of 15 years.

This, it was claimed, would include a trade corridor between Durban, the Free State and Gauteng, 122 nursing colleges and a multimillion-rand water project in the Waterberg region of Limpopo.

“It’s very difficult to make head or tail out of what progress has been made with regard to these so-called special infrastructure projects. Reporting on them is very sporadic,” says Krugel.

In his special emergency budget speech on Wednesday, Minister of Finance Tito Mboweni referred in passing to the importance of infrastructure, but did not elaborate on how the National Treasury would budget for this.

It’s very difficult to make head or tail out of what progress has been made with regard to these so-called special infrastructure projects. Reporting on them is very sporadic,
Lullu Krugel

Government will have to rely heavily on the private sector, development financiers such as the New Development Bank and asset managers if it wants to realise its infrastructure hopes.

Raymond Parsons, a professor of economics at North-West University, says it is very important to create an economic environment which is conducive to realising commitments from investors. “But as long as there’s the risk of load shedding and energy shortages, private investment will remain subdued,” he says.

Parsons believes government should attempt to identify a few key projects to prioritise, rather than casting the net too wide.

Krugel points out that infrastructure projects alone aren’t the answer to creating long-term employment. “In many cases, employment opportunities are temporary. If you build a road, for example, once that road is completed, there are no longer any employment opportunities.”

Johan Gouws, head of institutional advice at Sasfin Wealth, says there have been many wasted opportunities in respect of infrastructure projects over the years.

The plans have not been clear and international and local investors never know what to expect.

“Populism, poor economic policy, corruption, state capture – all these things have contributed to the money being spent in the wrong places. It simply got lost,” says Gouws.


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