Breaking Ground For Economic Growth - Infrastructure Development

We need to see less talk and more action!

President Cyril Ramaphosa on 23 June, spelt out how the government will foster infrastructure development while creating much-needed jobs to boost the economy. The President was speaking at the opening of the inaugural Sustainable Infrastructure Development Symposium of South Africa (SIDSSA) on Tuesday,

The President noted that the country needs to place infrastructure at the heart of the stimulus to realise economic recovery in the face of COVID-19. The virus has crippled economies across the globe, and South Africa has not been spared. The government is resolute to turn this around.

The economic decline has also been exacerbated by the downgrade of South Africa’s credit rating to sub-investment by all three credit rating agencies. However, for now, the country’s financial system remains resilient despite the ongoing crisis.

The President spoke of a combination of policy measures which will ensure that government continues to be able to fund itself through the domestic bond market at a reasonable cost, stabilising yields, injection of liquidity, reducing market volatility and alleviating disruptions to the flow of credit to the real sector.

Infrastructure development to be revived

The damage caused by the pandemic in infrastructure development has not deterred the government’s ambitious and sustainable infrastructure development programme drive. “To the contrary, the Coronavirus pandemic has made infrastructure investment even more compelling, even more, important and even more urgent,” noted the President.

South Africa’s dwindling infrastructure investment over the years, pre-COVID-19, has caused great hardship for the construction and related industries. [AND RAILWAY SECTOR]

“Buyers of infrastructure services have delayed the procurement of new projects or cancelled projects. Lenders and investors, in turn, are revisiting their decision to invest in infrastructure projects that were deemed bankable prior to the pandemic,” the President said.

Lower revenues, higher costs and non-payment has resulted in layoffs, financial losses and cash shortages. “This requires that not only must we push ahead to revive infrastructure investment but we rapidly move to increase the scale of our ambitions.”

The Minister of Finance has put forward a package of reforms to address macroeconomic imbalances and boost long-run growth, as the crisis eases to lower borrowing costs and provide additional space for infrastructure investment to occur.

The recovery package is intended to contribute to the speed with which South Africa can emerge from the crisis and improve the capacity of the economy to deliver sustainable inclusive growth.

Infrastructure investment provides both short- and long-term economic benefits. The President notes that “In the short term, it creates jobs and economic activity as roads, bridges, hospitals, schools, power plants and much else is built.”

This would get construction and related services business back to work, inducing them to hire staff and expand capacity. As construction services are procured, the government could assess project proposals on the employment impact to ensure the job creation impact is maximised.

Shovel-ready projects that have been fully developed for implementation will be the priority, ensuring the ground is broken as soon as possible. The President said infrastructure investment increases the capacity of the economy, reducing the cost of transport, and the capacity and reliability of key services like electricity and municipal services.

The government should also invest in infrastructure to enable businesses to accelerate employment and grow the economy, which will also allow government finances to stabilise and recover.

Supporting economic recovery

The Government is looking at policies that facilitate economic recovery, such as introducing stimulus packages that boost government’s infrastructure spending. It is creating financing instruments that provide liquidity, bridge financing or debt restructuring instruments, as well as guarantee products and funds.

The President is also encouraging proposals from private developers for sustainable and resilient infrastructure projects, offering a clear and expedited path for their approval.

“We will seek to prioritise proposals for infrastructure sectors, which are important to economic recovery and resilience, including energy, transportation, health care and digital infrastructure.”

The SIDS process has prioritised key network industries for investment, specifically energy, water, transport and information and communication technology infrastructure, as these sectors have proven to have superior multiplier effects. “They introduce greater efficiencies in the economy, promote spatial justice and have the capacity to absorb skills.”

Agriculture has also been included due to its employment absorption capacity, which could lead to the revitalisation of rural economies.

Decent low-income communities

Another priority of government is to provide integrated human settlements, which is also a focus area in the SIDS process, by providing decent housing to low-income communities.

“We are fashioning innovative building technologies and financing instruments to allow the private sector to participate in the low-income housing market,” the President said, adding that government will support black infrastructure service providers in much the same way it supported the emergence of black industrialists.

“This is an industry which needs to be transformed, in terms of ownership, participation, capabilities and skills.”

The industry needs to work towards blending the skills and experience of seasoned and even retired professionals with a new generation, who have the qualifications but would benefit from mentoring and support.

The President said they are determined to root out the corruption and collusion that has plagued this sector over many years. “This must be seen as an opportunity to build and maintain infrastructure in a different way, transparently, efficiently, and with effective accountability.”

Investors and addressing policy uncertainty

He said clear policies, institutional frameworks and bankable investment opportunities are critical to incentivising private investors.

“Domestic business investor sentiment is a key first-mover that will help crowd-in foreign investors and portfolio investors. Therefore, we are listening to our domestic private sector needs and requests to deal with blockages to greater investment.“

The private sector has an important role to play as builders and operators of public infrastructure, the President said. “These functions can add considerable value to the public if the right procurement and contracting processes are followed to ensure low prices and appropriate allocation of risks.

“As we work at strengthening this newfound relationship with the private sector, the government will work towards addressing investment policy uncertainties, accelerating SOE reforms and formulating the necessary infrastructure policy reforms.”

There currently 276 projects over a period five months, some which have been committed to funding, but the President said he needs more money for the other projects as well.

Public Works and Infrastructure Minister Patricia de Lille said," in this new normal, there is an even greater need to collaborate in the investment and implementation of infrastructure that will facilitate social and economic growth in a workable and purposeful way." She noted that infrastructure is no longer talking about new construction but also the maintenance and upgrading of the existing infrastructure.

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