State-owned entities (SOEs) are tasked with providing and maintaining the country’s economic infrastructure, while the government is responsible for social infrastructure. SOEs play a vital role in delivering services that influence the production and distribution of goods and services, including investment in road and rail networks, ports, bridges, water and sanitation networks, and energy-generating plants.
While South Africa’s core national economic infrastructure network is solid, it has significantly deteriorated over the years, with inadequate development of new networks.
In its 2012 National Development Plan, the government set an ambitious target of increasing fixed investment spending to 30% of GDP by 2030, with 20% from the private sector and 10% from the public sector.
However, over the past decade, fixed investment has declined by an average of 1.3% a year. It is, therefore, not surprising that GDP growth has been extremely weak during this time, averaging only 0.8% a year. Since 2012, fixed investment has averaged only 16.1% of GDP. As at the third quarter of 2024, fixed investment was just 14.8% of GDP, with the private sector making up the bulk (10.6%) and the public sector only 4.2%.
This is not only below the policy target, but also low by historical standards. In effect, South Africa has missed a generation of capital investment in roads, rail, ports, electricity, water, sanitation, public transport and housing.
To ensure sustained economic growth and improved services, public sector infrastructure investment needs to increase significantly from current levels. Given that SOEs are tasked with providing economic infrastructure, at least half of this responsibility rests on companies like Eskom, Transnet, Trans Caledon Tunnel Authority (TCTA), and Sanral.
However, SOEs face significant constraints that hinder their ability to meet their target. At current levels (1.7% of GDP), the investment shortfall is simply too large — and SOEs lack the funds and capacity to meaningfully ramp up infrastructure spending.
For the government to meet its investment target, SOEs need to increase their current investment spending by R240bn (based on 2023 GDP levels). This level of investment would need to be maintained for about five years to ensure sustainable economic growth. This means SOEs alone would need to spend R1.75-trillion over five years to address infrastructure problems.
Encouragingly, the government seems committed to ramping up the level of infrastructure spending over the medium term, with the intention to scale up private sector participation. According to National Treasury, the total public sector infrastructure investment planned over the next three years amounts to R943.8bn, with R486.1bn allocated to SOEs.
Importantly, 81.4% of this spending is expected to focus on economic infrastructure, particularly in transport and logistics, energy, and water and sanitation infrastructure.
Treasury is implementing recommendations to improve the policy, legal and regulatory framework of public-private partnerships (PPPs); strengthen institutional arrangements; and improve the reporting of fiscal risks and contingent liabilities.
The government’s delivery of infrastructure projects is often hampered by a lack of co-ordination within the public sector, poor co-operation with the private sector, and high borrowing costs
We have also seen an increased uptake of PPPs in 2023/24, with 15 projects at the inception phase and 19 at the feasibility study phase. Six projects have completed feasibility studies, and 10 are ready to start the procurement process.
While this is a welcome statement of intent by the government, more investment is needed to close the shortfall. Additionally, the government’s delivery of infrastructure projects is often hampered by a lack of co-ordination within the public sector, poor co-operation with the private sector, and high borrowing costs.
Despite the government’s pledge to enhance the use of PPPs, they account for only 2% of the total planned infrastructure spending over the medium term at R19.1bn — largely unchanged from previous years. This indicates that the majority of the infrastructure spending plan relies on the public sector’s balance sheet.
Given these issues, South Africa’s G20 and B20 presidency this year provide an opportunity for government to leverage its global diplomatic networks. It can advocate for support in addressing challenges facing the country, ensuring that consolidated G20 initiatives prioritise investment in infrastructure.
Additionally, the B20 can act as a catalyst for co-operation and innovation between the global business community and the South African government around the financing of infrastructure projects.
Fixed investment is one of the few tools available to raise South Africa’s long-term growth trajectory. By increasing the use of PPPs, ensuring policy certainty, and improving business confidence, the government can crowd-in private investment more aggressively. This includes leveraging the G20 presidency to help build institutional and financial capacity to implement much-needed investment plans that will build infrastructure to the required scale.
• Netshitenzhe is senior economist at Stanlib Asset Management
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