INFRASTRUCTURE: Far short of 2030 targets

Despite all the rhetoric, the government is missing its own target for infrastructure spending, as set out in the national development plan 2030.

With barely eight years left until that 2030 deadline, the combined level of private and public sector investment, expressed as a share of GDP, hovers at about half of that 30% target. Worse: this spending has actually declined, as a share of GDP, since 2013, according to National Treasury data.

By finance minister Enoch Godongwana’s own admission, the bailout of public enterprises has weighed heavily on the government’s ability to spend money on necessary infrastructure to boost economic growth.

Between 2010 and 2020, the public sector’s capital investment as a share of GDP averaged 5.8% against the target of 10%. Over the same time, private sector capital investment averaged about 11.2% of GDP — also barely above halfway towards the target of 20%. To reach its own target of 10% of GDP, the government should have budgeted for R644.1bn in infrastructure spending in 2022/2023. Yet, the Budget Review shows that the figure is only R249.6bn.

Over the next three years, the government estimates that its infrastructure spending will amount to R812.5bn, according to the Treasury. Admittedly, this is quite a jump from the R594.4bn spent over the past three years, according to the Budget Review, but it’s not nearly enough to meet its 2030 target.

Godongwana, in his maiden budget speech, explained why this was so in blunt terms: "More than R308bn has been directed towards bailing out failing state-owned enterprises [SOEs]. Since 2013, frontline services and infrastructure reduced by R257bn.

"In this budget, we are shifting from this trend, and are restoring our focus on the core functions of government."

In the Budget Review, the Treasury elaborates on this. "Over the past decade, weak growth, rising spending pressures and the financial support provided to SOEs have constrained the government’s ability to invest in new infrastructure."

If Godongwana aims to reverse this trend, and shunt a greater proportion of cash towards infrastructure, his budget would appear to at least be moving in the right direction — albeit more slowly than many would like.

The largest allocation in the government’s infrastructure budget — R88.6bn — is set aside for transport and logistics, a 20% increase on last year’s number. In fact, over the next three years, transport and logistics will receive R311.8bn, or 38% of the total R812.5bn due to be spent on infrastructure. This is a 53% step up from the R202.9bn spent over the previous three years.

But, given mounting complaints about the state of SA’s roads, and the greater use of road freight due to the meltdown of the rail network, you can see why this would be necessary. For example, some of the big-ticket items here include R45.3bn allocated to the SA National Roads Agency for the upgrade, strengthening and refurbishment of nontoll roads, R2.8bn for an upgrade to the R573 Moloto road, and R3.7bn for the N2 Wild Coast project.

And, amid talk that e-tolls in Gauteng may be abolished (transport minister Fikile Mbalula has implied as much in recent months), the Treasury has set aside R2.1bn to fund reduced tariffs for the e-toll network.

The Treasury has also allocated R37.4bn over the next three years for maintenance of provincial roads — an important move, since the mining and agriculture sectors rely heavily on these roads to get their goods to market, given Transnet’s weaknesses. "Provinces are expected to use the grants to rehabilitate 8,277 lane kilometres, reseal 11,217 lane kilometres, regravel 16,605km and blacktop-patch 5.4-million square kilometres," it said.

In another critical intervention, Godongwana said public finance laws will be amended in October to allow provinces to pledge their infrastructure grants. This will allow provinces to borrow more, to speed up their infrastructure rollout.

It’s a nice idea, but it remains to be seen if the large banks and other commercial lenders will be keen to risk lending to the provinces, given the paltry financial controls clearly alluded to in recent auditor-general reports.

Elsewhere in the Budget Review, the Treasury highlighted about R90bn of infrastructure projects in "advanced stages of planning", which will be good news for SA’s construction sector.

Lonwabo Maqubela, portfolio manager at Perpetua Asset Management, says: "There is some progress on key projects, for example, the Vaal River System bulk water project’s second phase, a R32bn project." In addition, "hospitals … in Tygerberg and Klipfontein are in the construction phase".

The issue, however, remains the slow pace of implementing these plans. This pace is still "inadequate", says Maqubela.

"Many of the projects identified as either Infrastructure Fund projects [costing] R90bn, or other public-private partnerships are still in the feasibility stage. So, to really start seeing more activity, we need to start seeing even more tender activity. That will be the sign that things are improving."

It’s a common sentiment.

As Nolan Wapenaar, co-chief investment officer at fund manager Anchor Capital, puts it: "What was said in the budget is not enough. We need more details."