Infrastructure spend fails to keep lights on

SOUTH Africans suffering through the country’s longest run of power outages ever can draw little comfort from how much the government has spent on infrastructure in the past five years: R1 trillion.

That has bought improved roads, airports, ports and rail lines. What it hasn’t produced: a reliable electricity supply.

Rolling power blackouts have hit on average every third day this year. The Treasury says “low and unreliable levels of electricity” are the biggest obstacle to faster growth. Data due to be released yesterday was expected to show factory output grew 1 percent in March after two months of declines.

South Africa accounted for almost a quarter of the 257 infrastructure projects of $50 million (R599m) or more being developed in Africa and half of the 10 biggest, a study released by Deloitte in March said.

Yet the power constraints negate the advantage of improved transport links that should be boosting company sales and exports.

“The numbers are big but the effectiveness of the infrastructure spending has been very, very poor,” Dennis Dykes, the chief economist at Nedbank, said last week. “Thus far, we have got no return at all from a number of capital projects. We have got a major problem” with the power supply.

The energy shortfall arose after the government stalled the approval of new power plants, leaving Eskom with a plethora of malfunctioning plants.

The economy could have been 10 percent larger had it not been for the power shortages, according to Dawie Roodt, the chief economist at Efficient Group. Twenty-one years after the end of apartheid, a lack of jobs keeps 10.9 million South Africans below the poverty line of R322 a month. A quarter of the work force is jobless.

Two new coal-fired plants – Medupi and Kusile – being built by Eskom, the first since the 1980s, are running four years behind schedule due to technical failures and strikes. They are expected to cost about 38 percent more than what was estimated in 2007.

Deficiencies

The government should shoulder part of the blame for the infrastructure deficiencies, Andre Pottas, the southern African head of infrastructure and capital projects at Deloitte, said. “We are short of engineering skills,” he said. “The procurement processes are very complex. We see a lot of stop-start on projects.”

The Geneva-based World Economic Forum’s 2014/15 Global Competitiveness Report ranks the reliability of South Africa’s electricity supply 99th out of 144 countries. The quality of transport infrastructure, by contrast, is 32nd.

The government has acknowledged its shortcomings: On April 15 Public Enterprises Minister Lynne Brown apologised to the country for the power shortages. – Bloomberg