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Jun 29, 2012

Infrastructure development will create strong economic future

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"‘There needs to be a fluent process by which PPPs are formed and agreed on for the country to grow its capacity’ – De Buys Scott"
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Road and rail infrastructure improvement projects by entities such as the Passenger Rail Agency of South Africa (Prasa), State-owned logistics group Transnet and the South African National Roads Agency Limited (Sanral) are highly advantageous for the future of the domestic economy.

“One can go so far as to say that they represent a recreation of the South African transport industry,” says audit, tax and advisory firm KPMG head of infrastructure advisory and financing De Buys Scott.

The enormous amounts being invested in the transport sector in the short term may be a burden on the economy, but the much-needed investment is paramount to the future growth and success of all sectors, including the energy and water sectors, he notes.

“Infrastructure investment must be viewed from a long-term perspective, as the long-term benefits drive the short-term burdens. The country is currently playing catch-up in terms of infrastructure investment and we are only now tackling the huge backlog of problems,” says Scott.

He adds that, over the next 5 to 15 years, current investment will significantly change the country.

The current state of road infrastructure, specifically primary road networks, is quite advanced owing to the many upgrades implemented by the Department of Trans- port, Sanral and public–private partnerships (PPPs). Secondary road networks and rural road infrastructure, however, leave much to be desired, with poor maintenance of these roads posing the biggest challenge.

Passenger Rail
Prasa is embarking on its Rolling Stock Fleet Renewal Programme to improve passenger rail infrastructure over the next 20 years.

The programme will focus on upgrading and expanding its current fleet; increasing the number of routes in the country; and modernising signalling systems, train control systems, telecommunications, signage and speed gates.

Once complete, the new fleet will enable the agency to transport double the number of passengers in a safer, more reliable and more efficient way.

Further, the programme will have a ripple effect on the economy, says Scott.

“Rail is said to be the primary means of transport for the lower-income earner. The new infrastructure will be efficient enough to transport more workers from the outskirts of town to the central business district to seek employment, thereby boosting the economy.”

Freight Rail
Freight rail infrastructure has also seen significant capital expenditure (capex) of late, says Scott.

“This capex investment is important for growing the economy, as port infrastructure relies on rail infrastructure to create one efficient network through which a country’s natural resources can be transported for export.”

The focus on improving rail infrastructure will also ease the burden placed on the country’s roads. South Africa’s road networks are heavily burdened and congested, partly owing to the number of vehicles transporting freight by road, says Scott.

He adds that, if freight rail efficiency is improved, logistics companies may find it advantageous to use rail rather than road transport, which may improve road safety.

Challenges
South Africa is one of a few countries to go through an entire infrastructure overhaul in all sectors simultaneously, says Scott.

He maintains that investment is the most significant challenge facing the many infrastructure upgrades.

Government and the private sector fund new infrastructure programmes; however, government funding is already thinly spread across the sectors, making private-sector involvement crucial to the success and sustainability of the upgrades.

Scott says each transport system needs to be assessed on its respective funding model.

Passenger rail follows a subsidised model as it is a low-cost means of transport. Govern- ment has an obligation to fund passenger rail to ensure its proper functioning but there is more private-sector involvement in freight rail. This enables the sector to follow a more self-sustainable and self-sufficient funding model, he adds.

Careful planning and budgeting by government and the private sector are also required, as specific sums of money are budgeted for each financial year.

Time and deadlines also prove challenging, which are noted in Prasa’s 20-year Rolling Stock Fleet Renewal Programme. The infra- structure programmes entail serious planning and meticulous execution, says Scott.

The country’s implementation capacity is also in question and further pressurised by the PPP formation process, he notes.

“There needs to be a fluent process by which PPPs are formed and agreed on for the country to grow its capacity.”

Scott adds that government has shown leadership and initiative in the transport sector based on its knowledge of the sector and the need for efficiency; however, for the programmes to remain sustainable, government must involve the private sector as much as possible.

The programmes are, however, viable insofar as the funding models and feasibility processes are thought through more meticulously than before, he says.

“Prasa’s upgrade programme is as an example of the rigorous and thorough feasibility process used to determine the viability of the upgrade programme. I believe that other projects of the same calibre, such as those undertaken by Transnet and Sanral, are quite similar,” enthuses Scott.

He emphasises the importance of proper analysis of the given situation before embarking on any upgrade programme.

Edited by: Chanel de Bruyn
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