Finance Minister says the government policy is focused on increasing South-Africa's long-term economic growth and reducing inequality.
Spending on infrastructure is one of the areas financial organisations and rating agencies made clear they would examine with great interest when the medium-term budget policy statement was released.
They want a clear sign that the government plans to move the economy from being consumption-driven to a bigger mix of infrastructure and fixed investment that leads to future growth.
And, so, Finance Minister Pravin Gordhan wasted little time stating in the budget that "government policy is ultimately focused on increasing South-Africa's long-term economic growth and reducing inequality" and that infrastructure growth and development is key to achieving this.
"In the period ahead, spending on infrastructure, health, education and social assistance will continue to grow, while the deficit will narrow to protect long-term sustainability," the budget policy statement said.
Although the statement said that over the next three years South Africa would have more electricity, rail, port and road networks to support growth, with short-term developments such as Eskom's Medupi plant, set to come on line in late 2014, together with increased investment in broadband and business support programmes, there was little detail on the progress of the 18 Strategic Integrated Projects prioritised under the National Development Plan.
However, it was encouraging to see that economic infrastructure —which includes communication, fuel, energy and transport — will experience a 7.9% increase in 2013-2014 and 2016-2017, though doubt has been expressed about the government's ability to deliver on its plans, so more detail of progress on its projects would have been encouraging. Nomura analyst Peter Attard Montalto said: "Infrastructure spending is an area in which the treasury has come up against serious difficulty, despite having a very strong planning capability in the form of the Presidential Infrastructure Co-ordination Commission, as well as hard work to create the fiscal and funding room for a R430-billion government and R397-billion parastatal spending programme.
"Capacity constraints have meant the pace of roll-out has been very slow."
Over the medium term, state-owned companies will account for the largest investments in economic infrastructure.
Of concern is that Gordhan has made it clear that these state-owned companies that are at the centre of the country's infrastructure expansion will not be given the money required but will be expected to borrow the money needed on the strength of their balance sheets, instead of being funded from the fiscus.
Gordhan said: "Where capitalisation of core public assets may be required, other measures, such as upfront disposal of non-core assets, will be considered."
About R2.5-billion has been made available to support infrastructure modernisation projects.
Additional funding has been set aside to support the Passenger Rail Agency of South Africa's procurement of rolling stock.
The agency plans to purchase more than 300 six-car trains over the next decade, with initial deliveries in 2015-2016.
Investing in water services
Funding for local government, housing and community amenities will grow by an annual average rate of 8.4% to R163.2-billion in 2016-2017.
Additional funding is made available to strengthen city-support programmes over the medium term, and for provinces to upgrade informal settlements in mining towns.
The government said it planned to invest substantially in water services over the next three years.
An additional R934-million has been made available to the regional bulk infrastructure grant (an indirect grant) to accelerate bulk water projects that will support broader development.
The grant will assist the water affairs department to fast-track projects in this area. Funds will also be provided to strengthen the department's project management and regulatory capacity.
The document said the government proposed significant growth in the value of indirect grants to provinces and municipalities, from R8.4-billion in 2013-2014 to R14.3-billion in 2016-2017, to assist in various infrastructure programmes such as those relating to schools.
Grants to be reduced
Said Gordhan: "New planning requirements were announced in the 2013 budget for provincial grant allocations for health and education infrastructure. All provinces have submitted the required asset-management plans. Incentives to reward value-for-money in delivery will take effect in the period ahead."
Some grants will have to be reduced to accommodate spending on bulk water delivery.
For example, the urban settlement development grant is reduced by R130-million (apparently because of underspending), and the municipal infrastructure grant is reduced by R850-million.
Other grants cut to fund the bulk water grant include the expanded public works programme integrated grant for municipalities, the infrastructure skills development grant and the energy-efficiency demand-side management grant.
In 2013-2014, local government receives R84.8-billion, which is expected to increase to R106.7-billion by 2016-2017.
Changes to local government allocations shift funds towards areas that can support economic growth.
Integrated city development grant
The integrated city development grant provides the eight metropolitan municipalities with incentives to improve spatial development considerations in their planning and job creation.
The National Development Plan calls for maintenance of the road network, renewal of the commuter rail fleet and the unblocking of constraints to spectrum allocation in the information technology sector and money has been set aside accordingly, the statement said.
In an effort to combat procurement fraud and poor delivery, Gordhan said "rigorous procurement reforms are being initiated, especially in project management to strengthen service delivery, eliminate waste and root out corruption".
Infrastructure allocation did include one unexpected expense. More than R1-billion was added to the provincial sector grants of Limpopo, Mpumalanga, KwaZulu-Natal, the Eastern Cape and the Western Cape to repair infrastructure damaged by flooding in late 2012 and 2013.