The key to lifting SA’s falling levels of investment in infrastructure is to boost public private partnerships, says a report published by Business Leadership SA.
Though infrastructure investment is viewed by all economic stakeholders as key to SA’s economic recovery and is a top priority of the government’s growth strategy, investment volumes are falling. The report, compiled by consultancy Intellidex, seeks to identify the causes of the investment malaise and propose solutions.
Over the past six years, SA has moved further away from the National Development Plan goal for fixed capital investment of 30% of GDP. From a level of 20.3% of GDP in 2015, investment levels have fallen sharply to 17.9% in 2019.
To reach the NDP infrastructure investment goal, SA — which now spends R2.5bn a day — would need to spend an additional R1.6bn a day. To give an idea of what R1.6bn looks like, Intellidex says it would be equal to a solar plant that powers 20,000 homes or a new university.
The government’s two biggest delivery vehicles for infrastructure development — the state-owned companies and the main budget — have been under pressure. The balance sheets of state-owned companies have deteriorated due to corruption and mismanagement making borrowing difficult and government finances have been consumed by excessive debt and rising debt service costs. Poor execution capacity has led to poor outcomes and poor quality infrastructure.
The third mechanism for infrastructure delivery — public private partnerships — has collapsed with no new projects since 2017.
Private sector investment has trended sideways, says Intellidex chair Stuart Theobald, with the two crucial ingredients to generate investment — the need for additional capacity and a belief in future demand — missing from the SA economy for now.
With government borrowing at its limits, the best solution to propel infrastructure investment is through public private partnerships, says the report. But for this to happen reforms to the regulation of public financial management are required.
“On-balance sheet procurement is complex, but public private partnerships are subject to onerous additional bureaucracy. As a result, the use of public private partnerships has collapsed with no new projects registered since 2017. This is a central problem that should be addressed through new interventions to support public infrastructure procurement,” says the report.
Both the Public Finance Management Act and the Municipal Finance Management Act should be reformed, it argues.
Busi Mavuso, executive director of Business Leadership SA, said that while everyone agreed that infrastructure investment is central to economic growth, the numbers on the ground do not reflect that it is taking place.
“I don’t think enough is being done to look at, exploit and give effect to the public private partnerships model. As much as we talk about it, I don’t know how much is being done to look at the implementation rigidities ... I know we are discussing the reform of public procurement legislation at Nedlac ... But business is the only partner that sits with the balance sheet that can move us towards higher rates of investment,” she said.
Last year the government launched an Infrastructure Fund with the purpose to prepare bankable projects, derisk projects by taking first losses and attract private sector funding. In February’s budget, the fund received an allocation of R14bn over the next three years.
But, says Theobald, this is a problem that is far too big for the Infrastructure Fund to solve by itself.
“The Infrastructure Fund is important at the margins to work to crowd in the private sector. But to lift investment, we need a macro solution,” he said.
There are also policy reforms that could spur investment without costing the government anything, said Theobald. These include: enabling self-generation of electricity by private firms and individuals; licensing 5G spectrum, which will encourage investment; concessioning ports and rail to enable private investment; and establishing policy certainty in mining and exploration, which would unlock pent-up investment.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.