South Africa must scale up infrastructure spending, emphasises BLSA’s Mavuso

29th March 2021

By: Tasneem Bulbulia

Senior Contributing Editor Online

     

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A report released by business organisation Business Leadership South Africa (BLSA) last week indicates that the country is failing to get infrastructure investment to play a critical role in driving the economy, CEO Busi Mavuso says in her weekly newsletter.

“The facts on the ground are sobering: for the past five years infrastructure investment has been shrinking, driven primarily by a decline in investment by the public sector.

“The Budget in February showed a dramatic 27% shortfall in infrastructure spending by the public sector in 2019/20 and downward revisions to budgets for the next three years. This despite years of rhetoric about boosting infrastructure investment. What is going on?,” she questions.

The BLSA report provides answers and an evidence base for how to turn the trend.

The first thing it notes is the scale of the problem. To reach the National Development Plan target of spending 30% of gross domestic product (GDP) on infrastructure, South Africa needs to scale up investment massively, indicates Mavuso.

She says this target would require R4.1-billion a day of investment, compared with the current R2.5-billion.

“The 64% increase required is enough to fund a new university or a new renewable energy plant to power 20 000 homes every day. Think about the scale of that challenge – adding the equivalent of 365 new universities per year. This requires macro-solutions that free up both the public and private sectors to invest, rather than piecemeal interventions,” emphasises Mavuso.

The report makes it clear, however, that it is not the spending itself that matters, but the economic and social impact of the spending.

“We must make sure that we look at infrastructure over its lifetime to assess the costs (including maintenance) and the benefits to decide what to prioritise. There have been too many cases of infrastructure being ‘run to failure’ and then repaired – a far more expensive approach, but one that means the real costs are hidden when decisions are made about what to invest in. That must stop,” explains Mavuso.

She notes that the report identifies the complex regulatory framework for infrastructure procurement as a key reason for the declines in investment by the public sector, as well as the financial crisis facing State-owned entities.

Mavuso highlights spending shortfalls at municipalities most acutely, with a 33% shortfall in spending against budget in 2019/20. State-owned entities, however, have been the most dramatic underspenders, she says, with the dominant reason being their weak balance sheets, which makes it difficult for these entities to raise the debt needed to fund infrastructure investment.

The report makes it clear that there is no silver bullet, says Mavuso. She indicates that there is a range of detailed work needed to get each of the major channels of infrastructure investment working properly.

“But a key message is that the private sector must be a core part of the solution. With the capacity constraints and balance sheet problems in the public sector, there really is no alternative.

“The private sector can bring skills and funding to resolve constraints. But regulatory reform is essential to make that happen,” she highlights.

Mavuso says the real opportunity lies in reforms to improve the functioning of public-private partnerships.

“The National Treasury is now reviewing the framework and I hope this will lead to something more fit for purpose that can trigger far more joint projects,” she says.

Edited by Chanel de Bruyn
Creamer Media Senior Deputy Editor Online

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