I N F RAST RU CT U R E The year of expectation
FINANCIAL MAIL
RAZINA MUNSHI
views its R4 trillion infrastructure build programme as the most important factor on which economic growth will turn.
There is no denying that the economy needs it. Dams, pipelines, railway lines and energy distribution systems are in disrepair. And the economic stimulus of a spending programme of this magnitude could be a big fillip for government’s objective of industrialising the economy and creating new jobs.
This makes 2013 the year of expectation — and expansion.
A great deal of planning has already taken place under the aegis of the Presidential Infrastructure Co-ordinating Commission (PICC).
Projects are selected and categorised, implementation strategies have been proposed and timetables have been set.
Unfortunately for most new civil infrastructure projects, the advances stop there. Tenders for the construction of large projects have simply not emerged. Many of the projects still need to be tested for economic feasibility and government has acknowledged that not all will make the cut.
The PICC lists 645 projects packaged into 18 “strategic integrated projects”, shaped by spatial, economic and political concerns.
Projects run by state-owned enterprises offer more certainty. Freight logistics group Transnet has been working on new projects for years.
It will spend R300bn over
DECEMBER 20 1 2 the next seven years and expects to create 220 000 jobs. In addition, a partial commitment by national treasury to fund the Passenger Rail Agency of SA’s R123bn rolling stock replacement programme has facilitated the first leg of that development.
But delays in kickstarting projects like the construction of schools, hospitals and the replacement of key water infrastructure may be the consequence of political manoeuvring.
Navigating the political minefield, in the aftermath of the ANC’s electoral conference in Mangaung, has added a layer of complexity to state spending. The PICC’s plan for infrastructure is driven by President Jacob Zuma and a close group of cabinet ministers.
But its 20-year investment horizon takes it well beyond that of the current administration. With the amount of planning that has taken place, it would be a tragedy if the PICC’s work were to be tied to the political survival of the current administration.
Some project choices are political. The selection of projects in the Eastern Cape, for example, has been criticised for arising out of the political priorities of particular constituencies.
The energy department’s recent decision to proceed with the construction of Project Mthombo, an oil refinery in the Coega Industrial Development Zone, has received criticism from those who believe SA has sufficient refining capacity.
The economic feasibility of other projects, like the high-speed — and high-cost — passenger rail project between Johannesburg and Durban, has been questioned.
Funding is also of concern. The extent of the spending required means that the money won’t all come from the fiscus. Government institutions will have to tap international markets. But recent sovereign ratings downgrades will increase the cost of borrowing.
Even when funding is allocated, it is not spent. In 2010/2011, 68% of infrastructure funds were not spent.
Investment as a percentage of GDP is just 19%. This is from a high of 24,6% reached in 2008, when infrastructure spending soared in preparation for the 2010 soccer World Cup. Government’s national development plan targets a return to levels of almost 30% achieved in the early 1980s.
In addition, government has yet to find an optimal balance between funding from the fiscus and privatepublic partnerships.
Government’s handling of the e-tolling debacle, however, has made investors twitchy.
Also, anticompetitive behaviour within government has been identified as an inhibitor to infrastructure.
The Development Bank of Southern Africa’s recent State of Infrastructure Report said regulators of economic infrastructure should be empowered to penalise anticompetitive behaviour by firms and state-owned enterprises, many of which are monopolies.
But SA’s planning machinery has delivered a good overarching plan for how SA’s investment should be structured. The industry can only hope that 2013 will mark a turning point for the programme’s implementation.