Economic development is dependent on critical infrastructure such as transportation networks, communication networks, sewage, water, and a reliable electric power system.
South Africa is facing mounting problems emanating from the degradation of critical infrastructure due, among other reasons, aging, lack of maintenance, inadequate security to protect infrastructure, lack of funding to stimulate investment in new infrastructure, and the slow pace of government approval of projects.
The National Development Plan target for capital investment as a percentage of GDP is 30%.
However, in 2020, capital investment by the private and public sectors amounted to only 13.7% of GDP.
Nadia Rawjee, managing director of Uzenzele Holdings, which advises on, and arranges structured funding for multimillion-rand industrial greenfield and brownfield expansion projects, says that if South Africa is serious about transforming the local economy, key critical issues must be addressed.
Rawjee says there is a lack of public funds to improve critical infrastructure.
She provides examples of industrial projects that have been negatively impacted by problems with the provision of power, water, and cost-effective transportation.
- A large R250 million mineral beneficiation processing facility has been delayed due to the unavailability of power, which dictates the capacity of the facility and project size.
- Mines in Limpopo have been unable to expand extraction capacity due to insufficient access to water due to limited water distribution networks from dams.
- Projects have been shelved due to inefficient and unreliable transport networks.
She adds that there is a lack of cooperation between the private and public sectors. She explains that the private sector must come to the party, and pay what is commercially feasible for the use of infrastructure. The local community should be given access to electricity and water.
Development funds and grants for infrastructure
The Developmental Bank of Southern Africa (DBSA) manages the R100 billion Infrastructure Fund. Funding will be arranged through bespoke blended financing solutions with the private sector, institutional investors, and development banks.
The National Treasury will provide R100 billion over a 10-year period.
The Department of Trade, Industry and Competition manages the Critical Infrastructure Program, which covers qualifying development costs from a minimum of 10% to a maximum of 30% towards the total development costs of qualifying infrastructure.
Rawjee says investors face regulatory hurdles and red tape.
Government’s infrastructure investment drive
The 2022 Budget estimates that the government will spend some R812.5 billion on infrastructure over the next three years, with:
- State-owned entities spending R251.7 billion;
- Provinces R185.5 billion;
- Municipalities R194.4 billion; and
- Public entities R108.4 billion.
Of this, 77.6% will go to economic infrastructure, such as power-generation capacity, upgrading and expanding the transport network, and improving sanitation and water services.
The value of public-private partnerships (PPPs) declined from R10.7 billion in 2011/12 to R5.6 billion in 2019/20, partly due to onerous approval processes, and poor capacity of departments to estimate risk-sharing with the private sector.
It is estimated that PPPs will spend R20.4 billion over the next three years.
Boosting of critical infrastructure
Water and sanitation projects with an estimated value of R115 billion have been prioritized, including:
- The second phase of the Lesotho Highlands Water Project (capex of R32.6 billion), expected to be completed in 2027.
- The Berg River-Voëlvlei Augmentation Scheme (capex of R800 million) and Phase 2 of the Mokolo-Crocodile River water augmentation project (capex of R12.3 billion), expected to be completed in 2027.
- The uMkhomazi Water Project (capex of R23.2 billion), expected to be completed in 2029.
Energy projects worth an estimated R90 billion and totaling some 4,579 megawatts (MW) of new generation capacity expected to become available during 2022/23.
Private-sector investors will provide the investment capital.
These projects include:
- The Risk Mitigation Power Purchase Procurement Program for the development, installation and operation of up to 1 996MW of dispatchable new generation capacity and an investment of approximately R40 billion. (A dispatchable power station can supply power on demand.)
- The Renewable Energy Independent Power Producer Program for 1 600MW of onshore wind and 1 000MW of solar photovoltaic (PV) power, with an expected investment of around R50 billion, becoming operational towards the end of 2023. A further bid for 2 600MW of renewables and The first bid window for 513MW of storage is expected to be put to market by June 2022. The Department of Mineral Resources and Energy is also working on a gas program for 3,000MW of capacity.
- The Embedded Generation Investment Program, for the development, installation and operation of up to 469MW of solar PV and wind generation projects, will provide an estimated R9.7 billion in subordinated loans and broad-based black economic empowerment funding. Loans will be made available to private-sector solar and wind IPPs (independent power producers), and to special purpose vehicles established and owned by local community trusts and / or small, medium and micro-sized enterprises to enable them to purchase equity in local renewable energy sub-projects.
Transportation projects to the value of R34.3 billion are on the horizon:
- The South African National Roads Agency (Sanral) is improving the capacity of several routes on toll and non-toll networks.
- Harbors in the Western Cape will be revitalized, and harbors in the Northern Cape, Eastern Cape and KwaZulu-Natal will be developed and existing harbors revitalized.
Transnet operational issues
President Cyril Ramaphosa said in his 2022 State of the Nation Address that Transnet will improve operational efficiencies at ports by procuring additional equipment and implementing new systems to reduce congestion, and will seek private partners for the Durban and Ngqura container terminals within the next few months.
Transnet will also provide third-party access to its freight rail network from April 2022, and has developed partnerships with the private sector to address cable theft and vandalism on the freight rail network.
Rawjee is “cautiously optimistic” about the budget for the long term sustainability and growth of the economy but says “government will have to demonstrate that it has cut red tape and alleviated blockages to accessing government funds before private investors come on board”.