Picture: 123RF/thamkc
Picture: 123RF/thamkc

The past six months have been extremely challenging for South Africans and the domestic economy. Covid-19 and the subsequent extended lockdown have disrupted every major component of the country. This has resulted in a contraction of economic activity, a surge in government debt and a sharp rise in unemployment.

It heightened the need to improve SA’s economic growth rate sustainably. The focus to achieve this has been on infrastructural development as a key driver of growth. This focus is fuelled by record low levels of consumer and business confidence within the private sector and the government’s desire to remain at the centre of economic development, as well as recent policy pronouncements from the government and the ANC.

Every big growth initiative or policy document in SA in recent decades has referred to the need to invest in infrastructure as a key source of economic upliftment. And for good reason. Over time the government has established several institutions to strengthen the state’s capacity to improve infrastructure delivery. These have included, for example, the National Planning Commission, the department of performance monitoring & evaluation, the presidential infrastructure co-ordinating commission and the presidential review committee on state-owned enterprises (SOEs).

Budget constraints

While appearing compelling in scope and ambition, covering most areas of social and business infrastructure, these infrastructural development plans have not delivered on their promises. Projects have either been “permanently” delayed, remained endlessly in the early stages of planning or have been scrapped due to budget constraints, changing political priorities or simply a shift in the leadership of the institution or department that needs to undertake the infrastructural development.

Fixed investment spending by the central government has consequently dwindled. Infrastructural development by SOEs, which still control the bulk of the country’s business infrastructure, has simultaneously declined in each of the past four years and in seven out of the past 10 years. The total investment spending by SOEs is thus at its lowest level in 12 years. In fact, the current level of infrastructural investment is insufficient to even maintain SA’s existing infrastructural capacity, leading to a decline in a wide range critical services, including, most recently, water and sanitation.

The pattern of highlighting infrastructure as a critical source of economic growth and then failing to implement the strategy has led to successive bouts of disappointment, and thus much scepticism. Correspondingly, the business sector is likely to first wait for infrastructure upgrades to be completed before initiating large investment projects of its own that depend on the upgraded infrastructure for success.

The level of fixed investment activity in SA is now barely enough to maintain the country’s base of capital stock, let alone expand the productive capacity of the country and create job opportunities. It is telling that the capital stock in SA’s manufacturing sector has declined 17% since 2008, while the output of the sector has stagnated for more than a decade.

The corporate sector’s balance sheet remains strong, but the sector lacks the confidence to unlock its potential through an increase in fixed investment and employment

More recently, the government held its first Sustainable Infrastructure Development Symposium, “Investing in infrastructure for shared prosperity: now, next and beyond”. This is a welcome initiative that required significant preparation under difficult circumstances given the limitations imposed by the Covid-19 lockdown. During the symposium the government highlighted a “shortlist” of 55 infrastructure projects divided into six sectors. These are water & sanitation, energy, transport, digital infrastructure, agriculture & agro-processing, and human settlements.

This initiative is to be applauded, especially the development of an infrastructure project pipeline that tries to streamline the existing fragmented approach to infrastructure development. But with a list of 55 projects it runs the risk of once again overpromising and underdelivering. Perhaps the initiative should identify and focus on a much shorter list of projects that have a very high chance of succeeding within a reasonable time frame, to reestablish credibility.

Most development initiatives in SA, particularly infrastructural investment, would benefit substantially from the increased use of private-public partnerships. This is especially the case since the government’s balance sheet is under enormous pressure, while economic growth has become much more vital and urgent. Equally, the corporate sector’s balance sheet remains strong, but the sector lacks the confidence to unlock its potential through an increase in fixed investment and employment.

Economic success is a confidence game. Economic confidence in SA, internally and externally, is near record lows and in desperate need of revitalisation. Under these circumstances if the government and the private sector combine there is opportunity to start uplifting the economy. The caveats to this are identifying a focused set of infrastructure projects that can be initiated quickly, have an impact on employment, use mostly domestically produced raw materials and can demonstrate tangible progress.

While we are conscious of the challenges in this sector, we support infrastructure investment initiatives. Our first infrastructure fund was 100% invested in renewable energy and we are seeing greater appetite for these types of investments. The key to success is focusing on investments that yield long-term, stable, inflation-linked returns.

• Lings is Stanlib chief economist.

Would you like to comment on this article or view other readers' comments?
Register (it’s quick and free) or sign in now.

Speech Bubbles

Please read our Comment Policy before commenting.