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SA's R800bn infrastructure drive

25 October 2011

South Africa is set to spend over R802-billion on infrastructure development over the next three years as part of a government drive to ease bottlenecks and reduce costs in the economy, "crowd in" private investment and improve access to export markets.

Presenting his Medium Term Budget Policy Statement in Parliament on Monday, Gordhan said public-sector investment in infrastructure - which has increased from 4.3% of the country's gross domestic product (GDP) in 2005 to 7.5% in the first half of 2011 - remained central to the government's economic development plans.

"Infrastructure projects in energy, roads, rail, telecommunications and water will ease bottlenecks and reduce costs in the rest of the economy, crowding in private investment and improving access to export markets," Gordhan told parliamentarians in Cape Town.

'A very substantial investment programme'

Public sector infrastructure spending in the current year is estimated at R233-billion, or 7.8% of GDP, while spending over the next three years is estimated at R802-billion.

"This is a very substantial investment programme, within which there is considerable opportunity for local construction and manufacturing development and job creation," Gordhan said.

Of the R802-billion, R292-billion will be invested in south Africa's energy sector, R226-billion in transport and logistics, R39-billion in hospitals and clinics, and R32-billion in education infrastructure.

Substantial funding will also go to municipalities and provinces for housing, residential infrastructure and local economic development.

Doubling electricity generation capacity

Included in these investments are Eskom's capital expenditure programme, which is expected to double South Africa's electricity generation by 2025, and the expansion of bulk freight rail, which will help raise transport volumes from 47-million to 60-million tons.

Of the R185.3-billion spent on South Africa's public sector infrastructure in the last financial year, over a third, or R69.1-billion, was invested in transport and logistics, and R52.5-billion in energy, while water and sanitation made up R14.4-billion.

Also included in these investments was R6.7-billion spent on hospitals and clinics, R6-billion on schools and R3.8-billion on courts.

Gordhan said reforms to improve the quality of regulation and encourage increased private-sector participation would improve efficiency and lower costs in these sectors.

'No choice but to expand'

At the same time, much of the new investment would be financed through debt, with state-owned enterprises borrowing about R74-billion this year to finance investment spending, rising to just under R80-billion next year.

"We need to appreciate that debt has to be repaid, either through the tariffs and charges that are dedicated to these services, or through higher taxes," Gordhan said.

"It is important to find the right balance between cost recovery from users of services, and general tax-funding. But the cost of not expanding capacity, the cost of not maintaining and rehabilitating ageing infrastructure, is an even greater future burden of congested and dangerous networks, constrained production and economic decline."

Speaking at a media briefing shortly before his speech in Parliament, Gordhan said South Africa had the capability to develop world-class infrastructure.

"South Africa delivered the World Cup, South Africa delivered the stadia on time. Look at Brazil today and the challenges they are having in getting their infrastructure right," Gordhan said.

He said a presidential commission on infrastructure would help to develop a 10-year pipeline on infrastructure developments, put in the capabilities from the private and public sectors, and source the funding.

SAinfo reporter and BuaNews