The government needs to start spending the extra tax it collects on repairing and building roads, improving railways, getting ports back on track and expanding access to more energy, according to economist Roelof Botha.
“Unless the government provides significantly more fiscal resources for infrastructure development in the 2023 budget and addresses the delays in tender processes, the construction sector will remain relatively subdued,” Botha said on Tuesday in the latest Afrimat construction index (ACI), which he compiled on behalf of the JSE-listed building materials and mining group.
The composite index of the level of activity within the building and construction sectors rose 7.2% in the latest quarter and is 2.7% higher year on year, driven largely by the private sector.
The biggest contributors were higher wholesale construction trade, more building material volumes and increased employment in the sector.
This comes despite finance minister Enoch Godongwana announcing in the medium-term budget policy statement (MTBPS) in October that tax revenue collection exceeded projections, with a tax overrun of R83.5bn expected.
“So why is [Godongwana] not repairing roads? Why is he not building new roads?” Botha said in an interview with Business Day, noting that the private sector was spending its own money to fix government infrastructure.
“If you own a KFC franchise and there is a massive pothole in front of your shop, and customers are avoiding you because of it, then you fix it yourself. The same applies to farmers,” he added.
Botha believes the biggest hurdle is not finances, but the tender process, which relates to government incompetence at all levels. He believes the solution is public-private partnerships to bring in the expertise from the private sector to expedite the rollout of government projects.
The SA construction industry body came out guns blazing last month against the SA National Roads Agency (Sanral) after it awarded multibillion-rand tenders to Chinese contractors.
In an open letter addressed to President Cyril Ramaphosa, the SA Institution of Civil Engineering (SAICE) requested details regarding the tender adjudication process and the criteria for which the foreign companies were successful in being awarded the projects.
The companies in question are China Communications Construction Company, which will oversee the construction of Mtentu River bridge in the Eastern Cape along with SA partner Mecsa Construction, to the tune of R4bn. The other is Base Major/CSCEC Joint Venture, which will rehabilitate the EB Cloete interchange connecting the N2 and N3 near Durban in KwaZulu-Natal, at a cost of R5bn.
Sanral is responsible for the upkeep of SA’s national road network, but is also the key player in the development of infrastructure, which is seen as vital to unlocking the country’s growth potential.
The construction sector grew 3.1% in the third quarter, close to double SA’s real growth rate of 1.6% quarter on quarter.
Botha is concerned about the slow pace of recovery of gross fixed capital formation in the economy as it presented 7.1% of GDP, which he said is a “far cry from the global average of 26% and not remotely adequate for a country with a population of more than 60-million people that is expanding relentlessly”.
The Afrimat construction index has virtually recovered from the effects of the Covid-19 pandemic, but it remains below the record-high reading in the third quarter of 2016. Botha said this is a “clear indication of the erosion of investor confidence that characterised the latter years of the state-capture era”.
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