Business / Business News

Moneyweb
Content partner
6 minute read
8 Oct 2021
9:54 am

Govt’s R595bn infrastructure plan needs R441bn for ‘new’ projects

Moneyweb

The public sector needs private contractors to fill the funding gap, but a lack of service delivery is creating a less than ideal environment for infrastructure projects.

President Cyril Ramaphosa says the current framework is ‘not really workable’ but that amendments to the Infrastructure Development Act will be proposed in the coming year. Image: Siyabulela Duda/GCIS

The government has unveiled a pipeline of 55 new catalytic infrastructure projects from various sectors valued at about R595 billion, that will create an estimated 538 500 employment opportunities.

However, Minister of Public Works and Infrastructure Patricia de Lille said on Thursday there is a funding gap of about R441 billion for the 55 new projects being presented to the market.

De Lille said this year’s Sustainable Infrastructure Development Symposium South Africa (Sidssa) project pipeline focuses on the following areas:

  • Potential public-private partnerships (PPPs);
  • The green economy;
  • Student housing/accommodation;
  • Manufacturing and industrialisation;
  • Social infrastructure;
  • Infrastructure Fund-approved projects; and
  • Investment into the digital economy.

Head of Infrastructure and Investment in the Presidency Dr Kgosientsho Ramokgopa said 60% of the 55 projects are at an advanced stage of preparation and only 40% at early preparation stage, which means many can be rapidly graduated to support President Cyril Ramaphosa’s Economic Reconstruction and Recovery Plan.

‘Big pool of global liquidity’

Ramokgopa added that if these projects are properly packaged, there is a big pool of global liquidity that can be directed towards supporting some of the infrastructure project programmes that the government is initiating in the second instalment of sustainable infrastructure developments.

He said in addition to improving the quality of projects coming through, they are also attending to some other issues, including bulk infrastructure financing.

Ramokgopa said this is the exclusive domain of municipalities, but it is well known that the balance sheets of municipalities are deteriorating and their “fiscal head space has been obliterated, which is undermining/sterilising projects”.

“This is undermining the ability of the private sector to participate in this space because if there is no water, if there is an insufficient supply of electricity, if the road network is not sufficient or the capacity is not improved, the private sector is unlikely to move,” he said.

Integrated projects

The government in July 2020 unveiled 50 strategic integrated projects (SIPs) and 12 special projects involving an investment of R340 billion that were supposedly “shovel ready” and would commence within three months as part of Ramaphosa’s infrastructure investment drive to stimulate the economy.

Ramokgopa said when these initial projects were unveiled that funding from the debt capital market accounted for R340 billion of the total investment in these projects and they would not draw any money from the fiscus.

De Lille told the second Sidssa on Thursday that pitching sessions were held with the market prior to Sidssa 2021 to increase the supply/quantum of projects towards bankability and showcase projects in South Africa’s infrastructure portfolio for raising capital from national and international investors.

She said Sidssa 2021 is a platform created by the government to continue forging the social compact between government, private sector, labour and civil society in the infrastructure space.

“As government, we are demonstrating the importance of investing in infrastructure development to create the conditions conducive for the crowding-in effect by the private sector.”

She said given the challenges in regard to budget constraints, it is vital that government works with the private sector to invest in projects that will ensure inclusive growth and development to assist the recovery of the economy.

De Lille said public infrastructure investment is central to achieving greater productivity and competitiveness, reducing spatial inequality and supporting the emergence of new job-creating sectors.

“It is thus one of the non-negotiable foundations of transformation and inclusive growth.”

Project update

In an update on the 62 projects unveiled at the inaugural Sidssa in 2020, De Lille said 33% of these projects, involving about R119 billion of the R340 billion of investment, are in construction and some have been completed.

Completed projects include the N1 Winburg Interchange and N1 Ventersburg to Kroonstad Roads projects in the Free State, and the N2 Mtunzini Toll Plaza to Empangeni in KwaZulu-Natal.

De Lille said three of the 62 gazetted projects are in the procurement stage, with the preferred bidders appointed in the emergency Risk Mitigation Independent Power Producer Procurement (RMIPPP) programme for 200 megawatts of energy announced by Minister of Mining and Energy Gwede Mantashe a few months ago.

She said construction is scheduled to start “within the next 12 months” on a further 13 of the 62 gazetted projects while the remainder “are at various stages of preparation and feasibility”.

Ramaphosa stressed that a number of projects are underway throughout the country.

“Many of our people throughout the country often say ‘Where are these infrastructure projects? We don’t see them.’ They are underway,” he said.

Ramaphosa said the National Development Plan (NDP) says that the ratio of gross fixed capital formation to GDP should be at least 30% – but following the recent recalculation of South Africa’s GDP, this ratio is currently just below 14%.

“This is not desirable for an economy of our size. Underspending on public infrastructure budgets compounds this problem,” said Ramaphosa.

Plan drafted

“That is why Infrastructure South Africa has drafted a National Infrastructure Plan 2050 that sets the vision for what needs to be achieved in public infrastructure and the policy stances required to get there,” he said, adding that the focus is on capital investment in the large network sectors of energy, water, transport and the digital economy.

“At least a third of the capital required for this infrastructure should come from the private sector,” said Ramaphosa.

He added that government recognises that the current policy and legal framework for public infrastructure is fragmented and not really workable, with many overlapping institutional roles and poor accountability.

He said Infrastructure SA will in the coming year be proposing amendments to the Infrastructure Development Act, including new regulations, and amendments to other legislation, including the existing PPP regulations.

Ramaphosa said the regulatory framework intends to clarify roles and responsibilities among all relevant organs of state in the preparation, approval, procurement and delivery of large infrastructure projects and programmes, whether they are designed as PPPs or for direct fiscal expenditure.

SA Forum of Civil Engineering Contractors (Safcec) CEO Webster Mfebe said if there is funding that is committed for the 55 new projects to be implemented, “that is very much welcome” because contractors are struggling.

However, he said these projects might not be new projects but projects that previously started and stalled.

“While they have announced the government projects in the way they have, they must also fast-track the impediments to private sector projects, especially those that require licences and permits,” said Mfebe.

“Private sector projects create new jobs. If the government thinks the economy will be built on the back only of public sector projects, they are making a mistake because government needs to find money to pay for them,” he said.

Mfebe said a conducive environment must be created for private sector projects to get off the ground.

He said if the construction industry has to rely on the fiscus, it means it has to rely on a tender system that has corruption problems because “everybody is vying for the limited opportunities that are created by public sector spending on infrastructure”.

By Roy Cokayne

This article first appeared on Moneyweb and was republished with permission. Read the original article here.