/ 5 July 2013

Patel beats a R1-trillion path to infrastructure heaven

Patel Beats A R1 Trillion Path To Infrastructure Heaven

But underspending — particularly at municipal level — skills shortages and a tarnished relationship between the government and construction sector may well put a spanner in the works.

Ebrahim Patel, minister of economic development and head of the Presidential Infrastructure Co-ordinating Commission secretariat, at a meeting with President Jacob Zuma on July 3, gave a comprehensive and updated warts-and-all picture of the infrastructure projects, outlining the achievements and hurdles.

The commission is mandated to develop a 20-year infrastructure pipeline to eradicate the stop-start problems that have characterised infrastructure development — and it has its work cut out.

The commission oversees 18 strategic integrated projects that take in 153 clusters of projects, which themselves cover 1 132 construction sites, ranging from rural clinics to Eskom's coal-fired power plant, Kusile.

In December 2012, 178 000 people were employed on the projects monitored by the commission. Currently, the projects that are active, approved and budgeted for are worth R750-billion.

The push for infrastructure is in line with the New Growth Path framework for economic policy, which drives South Africa's job strategy.

Spending levels
Patel said spending levels had increased in the past financial year and that, in the five years starting from 2009, the commission had managed projects on which spending would be about R1-trillion, double the amount spent in the previous five years, despite the World Cup infrastructure projects and the Gautrain.

Although there might be a perception that construction had dropped off since the World Cup, Patel said it was not so. He said the difference was that, although much construction was taking place in the metros, a greater number of projects were now happening outside these hubs. He offered Kusile as an example, which currently provides 14 000 construction jobs on the site near Emalahleni.

However, "one of the most significant challenges of underspending is at municipal level … and municipalities account for a significant chunk of the infrastructure build programme," he said.

One problem that has been identified is that the funding model is annual and so budgets are approved early in the year. As a result, major programmes are usually crammed into the later months of the year.

Therefore, the commission is looking at multiyear budgets on infrastructure so there is certainty on the funding and municipalities can ramp up spending.

Skills shortages are another critical problem identified by the commission, which has looked at the output of universities and further education and training colleges to identify skills that will be scarce as the building of infrastructure is ramped up.

Cabinet to look at recommendations
Patel said recommendations on how to address them would go to the Cabinet lekgotla this month. They would deal essentially with offering financial incentives to young people to study for jobs in the scarce skills categories and working with universities to increase capacity.

As the government forges ahead, the private sector has been criticised for sitting on a cash pile, estimated to be worth hundreds of billions of rands, instead of investing it in the economy.

Patel said it was "understandable that, in periods of instability in economy, public sector spending has to lead, encourage and support private sector investment".

Power constraints were also hampering expansion and new investment by the private sector.

"Eskom is already hitting the upper end of supply," he said.

So, although the government would lead the infrastructure drive, with a large part of it being concentrated in the energy construction programme, it expected the private sector to expand its level of investment on the back of the infrastructure programme.

Considering the best interest of the country
"On the other hand, when we are providing this very significant size of infrastructure [development] then we need a private sector that brings value to the South African public."

Although it went without saying that construction companies had to avoid corrupt practices, Patel said both the government and the private sector had to build relationships that were in the country's best interests.

A relationship of trust needs to be rebuilt following the Competition Commission's uncovering of collusion and price-fixing in the construction industry, and Patel did not mince his words about retribution.

"Cartel activities represent large-scale corruption and fraud. They cost the economy dearly … they have led to a significant increase in costs for the build programme," he said.

Having heard that the National Prosecuting Authority would deal with matter, Patel said there was "certainly a strong feeling that we [government] needed to make sure those who colluded are held to account for their actions".

He said the commission agreed that, besides the penalties set by the Competition Tribunal, civil claims had to be considered.

"Those who have not settled will be prosecuted. We have asked those [who have not settled] to use the time while the tribunal sits to settle with the commission."

Patel said that there was also a need for a longer, 30-year pipeline for infrastructure so that each year was not spent in playing catch-up. It would be an attempt "to break away beyond the elective cycle", he said.