/ 16 February 2009

Oh what joy

funds for transport-related infrastructure will total R50,9-billion over the next three years. Photo: Oupa Nkosi
funds for transport-related infrastructure will total R50,9-billion over the next three years. Photo: Oupa Nkosi

South Africa’s massive infrastructure investment, and its expansion in the 2009 budget to R787-billion, has seen ”our roads, our airports and our railway stations” become ”construction sites”, said Finance Minister Trevor Manuel in his budget speech last week.

Acknowledging the inconvenience to millions of commuters every day, Manuel implied that we should look at this inconvenience with great joy, as it is what has saved us. He stressed the benefit of continued infrastructure spend for the country’s economy as it adjusts for the impact of the global economic crisis.

Initially forecast at R690-billion, fiscal support towards infrastructure spend increased by R100-million. According to Goolam Ballim, chief economist at Standard Bank, public sector infrastructural provision constitutes a highly effective form of public spending. ”On balance every R1 of infrastructure spend will contribute at least R2 in GDP lift over the long term,” he said.

”In other words the most efficient form of public expenditure is public sector infrastructure provision, in contrast to, say, tax relief or government consumption which both over the long term contribute sharply less to GDP than the initial outlay.”

He also pointed out that infrastructure spend typically has a very low import content and relies significantly on lower skilled labour. ”This is constructive in boosting growth in employment over the near and long term.”

And while the budget’s massive provision for infrastructure projects is in part a response to the global economic crisis, the country’s expanded public works programme is already reportedly the third largest infrastructure-spending programme in the world.

The budget increases spending on a range of infrastructure investment plans including a further R6,4-billion for public transport, roads and rail networks, R4,1-billion for school buildings, clinics and other provincial infrastructure projects, and R5,3-billion for municipal infrastructure and bulk water systems.

”Major investments in power generation, transport networks and telecommunications are in progress, building an environment within which mining and industrial development, tourism and our services economy will prosper, even if the short-term outlook is poor,” Manuel said in his budget speech.

He also noted that many of South Africa’s infrastructure projects are not just ”shovel ready” — a term used to distinguish projects that are ready for implementation from those that have still to be planned, designed and contracted — but ”already shovelling”.

The ”shovelling” already under way includes the budgeted support for Eskom’s build programme of R60-billion.

In addition to this, however, government will underwrite Eskom debt to the tune of R176-billion. This consists of R26-billion of existing debt and R150-billion in new debt over the next five years.

This ”very positive” support could translate into some relief for Eskom customers, suggests Cornelius van der Waal, energy industry manager at Frost & Sullivan.

”Eskom’s credit rating should improve as a result meaning they can borrow money cheaply, making their infrastructure projects less pricey,” he said.

”As a result we could see less dramatic increases in the cost of electricity for the consumer.”

The budget review strongly hinted that further support for state-owned entities could be in the pipeline, if ”a clear need for shareholder support is identified”. In such cases a ”security for borrowing can be considered, provided that a sound business plan is in place to ensure long-term financial sustainability,” the review noted. ”Requests for guarantees from various state-owned entities are under consideration. In extending guarantees, government remains mindful of its guideline for total debt, provisions and contingent liabilities,” it stated.

The budget review also said that investment in the transport sector increased, strongly driven in part by state-owned enterprises’ infrastructure expansion programmes.

These include the upgrading of airport terminals ahead of the 2010 World Cup and a major national roads maintenance programme. Funds for transport-related infrastructure will total R50,9-billion over the next three years.

The budget also earmarks R8-billion for infrastructure-related spending by municipalities. In the next three years, government will transfer R67,5-billion to municipalities to provide infrastructure for basic services and to enhance electricity demand-side management, according to the budget review. Of this amount, R2-billion is set aside for the completion of stadiums for the 2009 Confederations Cup and the 2010 World Cup.

The municipal infrastructure grant also saw an increase of R4,3-billion to enhance access to water, sanitation, electricity and roads.