For close to two decades, the ANC government pinned its economic growth strategy on pumping up investment in infrastructure with varying and declining success.
Now, with the economy in crisis, it is getting ready to do so again but this time with less money, a weaker state and a more constrained ability to borrow.
On June 23, President Cyril Ramaphosa will launch his attempt to tackle the infrastructure problem at the inaugural Sustainable Infrastructure Development Symposium of SA (Sidssa), promising a different approach from ones that have gone before.
While infrastructure spending grew strongly up until 2017, since then it has been in decline. It has also been weighed down by corruption, mismanagement and neglect, with the result that much network infrastructure in water and energy is at risk of failure. SA is now far off its national development plan (NDP) goal to spend 10% of GDP on public infrastructure. An NDP paper published in April says that public infrastructure investment is now just under half of that.
Presidential initiatives to elevate infrastructure spending as well as centrally co-ordinated strategic infrastructure programmes have had limited impact. What will be different this time?
Kgosientso Ramokgopa, the head of infrastructure and investment in Ramaphosa’s office, is responsible for the Sidssa, and he believes the approach has unique features. Over the past six months he has met multilateral funders, commercial banks and development finance institutions to generate interest and raise funding to build a pipeline of projects.
The Sidssa is an event and not an implementing body. Its only role is to move selected projects to bankability, create a pipeline and then return the projects to their homes in government departments or state-owned enterprises, says Ramokgopa.
“The first uniqueness is that projects are co-designed by the private and public sector. The banks and multilateral funders identified and paid independent sector specialists to look at the ideas and design proposals. These are preferably projects with a revenue stream, which can be packaged for investors,” said Ramokgopa.
Scoping process
In the past, the government was reluctant to allow private sector involvement in scoping projects that would later come to the market for funding and for tender. The scoping process enables decisions to be made on the feasibility of projects on the basis of considerations such as whether it will generate a revenue stream and its attractiveness to investors.
“We used to say that the private sector cannot be player and referee. But the state’s capacity for financial and technical engineering has been decimated over time, so we now agreed that it is best to sit with private sector specialists to prepare projects,” he said.
“The second uniqueness is that we did not draw only from public sector projects but also looked at private sector projects that might need regulatory approval or government involvement. For example, a developer might have a mega housing project, but it needs local government to provide bulk infrastructure,” he said.
Among the projects that were pitched at a market sounding two weeks ago are several large housing projects for the gap market proposed by private developers, as well as housing and other mixed-use developments sponsored by local and provincial governments.
Apart from housing, there are project proposals in the water sector, agriculture, energy, transport and the digital economy. The greatest number are in the area of water provision, for which there are 35, including an additional phase of the Lesotho Highlands Water Project, the Mzimvubu Dam in the Eastern Cape and the Musina Dam in Limpopo. These, says Ramokgopa, are the ones he feels most strongly about, with the Covid-19 epidemic having highlighted the large number of villages and schools without access to water.
The energy projects are also of great interest to the market and to business, because of SA’s electricity constraints. They include the conversion of Eskom’s two open gas cycle turbine power stations from diesel to gas, as well as the stalled private sector concentrated solar project, initiated by Acwa Power and around which there has been much government and Eskom ambivalence.
Many of these proposals have been on the government’s infrastructure wish list for years. Ebrahim Patel, who was minister of economic development in the two administrations of president Jacob Zuma, also launched a much-hyped infrastructure drive. In it were 645 projects grouped into 18 strategic infrastructure projects, announced at a large conference with the construction, engineering, finance and savings industries.
At the time, Patel expressed the same ambition as Ramokgopa: he would build a project pipeline to boost economic growth, stimulate the construction sector and job creation, promote localisation and provide opportunities for transformation.
But over the past five years, the opposite has happened. The construction sector has all but collapsed: Group Five is in business rescue, Murray & Roberts has sold its infrastructure and building units and Aveng’s market cap has shrunk to a fraction of its former size.
The R3-trillion the national planning commission says was spent between 1998/1999 and 2017/2018 on public infrastructure has been wasteful. By far the biggest projects were Eskom’s Medupi and Kusile, anticipated to be completed by 2015 at a total cost of R163bn. That cost has since ballooned to about R460bn.
If there is one over-arching lesson from all this, it is the one Ramokgopa has already headlined: the state does not have the capacity and know-how to manage ambitious infrastructure projects and must take advantage of the capacity that remains in the private sector.
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