AYABONGA CAWE: Infrastructure investment programme idling in the blocks

The economic reform programme proposed by the government has at its centre a supply-side focus on improving the organisational and strategic functioning of network industries. While not a sufficient condition for and enabler of inclusive growth, such investments are critical enablers of production, in the case of economic infrastructure, and social reproduction in the case of social infrastructure.

Investments in such infrastructure are overseen by organs of state that span municipalities, state-owned enterprises (SOEs) and other entities, of varying degrees of functionality. For all the talk — not all unproductive, I might add — it doesn’t seem that the infrastructure investment programme has kicked off in earnest.

As the operational update released by cement producer PPC last week showed, these organs of state have yet to make a big dent in the infrastructure, repair and maintenance backlogs across our society. “Except for some limited road construction and rehabilitation activity,” the PPC update said, “there have been no large infrastructure projects.”

SOEs and municipalities wield the largest capital budgets within the public sector. The sources of funding in the case of SOEs are retained earnings and borrowings, and in the case of municipalities the difference is the role of conditional grants from other tiers of government. Finance minister Enoch Godongwana has made it clear he will show “tough love” to the SOEs by cutting back bailouts, the extension of guarantees and other forms of fiscal support that tie this and the next generation to the fortunes of these firms.

Municipalities aren’t doing any better, with the provinces with the weakest economic outcomes being those that also have underspent their budgets — by nearly a fifth in the last financial year. Yet, as the Presidential Economic Advisory Council suggested in “Briefing notes on key policy questions for SA’s economic recovery”, published in October 2020, we are in a moment where funding of long-term capital investment is a societal rather than a government affair, requiring risks to be taken and shared, to drive the direction and spatial distribution of economic growth at a local level.

This is an issue the panel on infrastructure at the fourth  SA Investment Conference 2022 highlighted. Kgosientso Ramokgopa, head of the presidency’s investment & infrastructure unit, suggested it would take 68 years to deal with the infrastructure backlog if resources from the fiscus were used.

The challenges are at multiple levels. At a policy level, Monale Ratsoma, head of the New Development Bank’s Africa Regional Centre, suggested that “many projects in energy, water, transport or ICT are stuck because of unresolved policy issues”. This included the issues around the allocation of spectrum, or the effect of the indecision on E-tolls on Sanral’s investment pipeline. Ratsoma also lamented that everything “reactively fell” on the fiscus, which was expected to resolve “every rescue or recovery issue”.

It is an interesting observation, which though many financiers on the panel expressed an interest in “sharing the risks” of long-term investments in overhead capital with the government, seems to be tripped up by multiple challenges. One is the term horizon of fiscal decisions, which is much shorter than the time required to build large infrastructure projects.

Yet it seems without a clear approach to resourcing such social and economic infrastructure and a political economy compact on the governance, capability and function of the agencies (municipal and SOE) spending the cash, much of the commitments will translate to little on the ground. As public works & infrastructure minister Patricia de Lille suggested in the same panel, such a compact will need to resolve, for instance, why “government is always over-charged”, and the issues around groups that “go around the country wanting 30% of projects”. 

I would add that SOEs need to consider not just their survival, but their role as lead firms and investors in sectors undergoing unparalleled change. It is indeed a great responsibility that policymakers, officials and management teams will have to take seriously. Or else the allure of an expansive infrastructure plan may lose its shimmer, with every project stalled or left incomplete for this or any other reason.

• Cawe (@aycawe), a development economist, is MD of Xesibe Holdings and hosts MetroFMTalk on Metro FM.