With government spending at a historic high of 36% of GDP, the National Treasury has cut back infrastructure spending in underperforming programmes such as human settlements and public transport.
The Treasury is reducing the municipal infrastructure grant by R2.8bn over the next three years, which means a slower roll-out of such projects as connecting poor households to water and electricity.
At the same time, finance minister Tito Mboweni said the government is cutting public transport spending by R13.2bn, mainly affecting allocations to the Passenger Rail Agency of SA (Prasa). Prasa’s allocation was reduced because it underspent in previous years.
"The planning and implementation of integrated public transport networks will consequently be suspended in the Buffalo City [East London], Mbombela [Nelspruit] and Msunduzi [Pietermaritzburg] municipalities," he told parliament.
The Treasury says the three municipalities have been slow to implement public transport systems and will be suspended from the grant programme for the next three years.
The Budget Review says that while investment in state-owned enterprises (SOEs) is expected to remain constrained, initiatives such as the infrastructure fund should bring in private and public investment.
While the government has prioritised spending on social and economic infrastructure such as schools and health facilities, the Treasury says infrastructure spending has steadily declined in the decade since the spike in investment prompted by the 2010 Fifa World Cup.
"This declining trend is largely due to municipalities and SOEs substantially reducing their spending over the past few years. Several major SOEs have struggled to access capital markets to finance infrastructure programmes.
"Most municipalities have underspent on conditional grants and are not collecting sufficient revenue to finance their capital budgets," the Treasury says.
Public sector infrastructure spending over the next three years is estimated at R815bn, with SOEs accounting for about R314bn of this. Provinces are expected to spend R177bn and municipalities R196.8bn.
This will mainly be spent on power generation, upgrading and expanding the transport network and improving water and sanitation.
Energy expenditure is expected to total R150bn over the next three years, accounting for 18.4% of total infrastructure spending. Eskom will be responsible for R128bn, or 85.3%. The government has set aside R117.1bn for water and sanitation, while R308.3bn will go to transport and logistics infrastructure.
The government has allocated R64.6bn to the SA National Roads Agency Ltd and R32.2bn to Prasa.
Economist Kenneth Creamer of Wits University says he is concerned that government infrastructure spending is being squeezed not only by a rising public sector wage bill and poorly performing SOEs, but also by a lack of economic growth due in large part to a shortage of electricity.
"As … Mboweni stated in his budget speech, restoring sufficient electricity supply is SA’s No 1 priority to achieve increased economic growth, jobs and investment," Creamer says.
He says Mboweni’s commitment to overcome SA’s electricity crisis must be read together with President Cyril Ramaphosa’s pledge to rapidly implement the Integrated Resources Plan.
"There is significant pent-up demand for massively increased investment in energy infrastructure, and the economic multipliers of such investment will be unleashed if regulatory blockages … are removed," he says.
Creamer says Ramaphosa’s continuing investment drive is beginning to pay off, citing recent Stats SA data that shows gross fixed capital formation grew by 5.3% in the second quarter of 2019 and by 4.5% in the following quarter.
"Post state of the nation address, Ramaphosa met with a number of leading SA engineers to work on a plan to improve infrastructure spending and he has set up an investment and infrastructure office under the leadership of [former Tshwane mayor] Kgosientso Ramokgopa," he says.
"SA’s construction sector is in a very poor state and sadly this is happening at the very time when black ownership levels in the sector are beginning to rise significantly," Creamer says.
"SA must work hard to retain its construction skills and expertise and the budget will have given some hope to this sector."
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