SA's budgeted infrastructure spending to play key role in Property Development

THE minister of finance yesterday delivered a good budget from an infrastructure point of view with budgeted spending for public-sector infrastructure totalling R827 billion over the next three years.

But the challenge for the state and South Africa is implementation and delivery on the ground and the huge amounts of the budget that are wasted each year through corruption and chronic implementation.

Budgeted spending for public-sector infrastructure plays a key role in overall property development as it allows investors and developers to plan properly without worrying about electricity availability and other necessary public infrastructure.

Presenting his 2013 budget speech in parliament yesterday finance minister Pravin Gordon said following estimated spending of R642 billion over the last three years, planned spending on infrastructure projects by the public sector totals R827 billion over the medium-term expenditure framework (MTEF) period.

The national infrastructure programme coordinated by the Presidential Infrastructure Coordinating Commission (PICC) contains a pipeline of projects under consideration.

Gordon said a much larger set of projects was under consideration over the longer term. He said decisions on which projects to implement would be guided by the National Development Plan (NDP), accompanied by thorough assessments of feasibility and value for money.

The first of two new large, coal-fired power plants would begin producing electricity in 2014, significantly easing the country’s power constraints.

Transnet’s pipeline, rail and port investments would gain further impetus in 2013. Construction and upgrading of dams, water transfer schemes, schools, hospitals, clinics and housing are under way. 

Government has a range of initiatives in place to address identified shortcomings in infrastructure planning and project management.

“The NDP provides clear guidelines for capital investment priorities and the sequences of decisions required to ensure that the country’s infrastructure needs are provided for in a sustainable, equitable, affordable and practical manner,” he said.

South Africa has spent R642 billion over the last three years on infrastructure projects by the public sector and a substantial number of projects are in progress or about to get under way. Weaknesses in planning and capacity, however, continue to delay implementation of some projects.

But Gordon said steps were being taken to address the problem.

“Government is improving capacity to plan, procure, manage and monitor projects, as well as working more closely with the private sector at various stages of the project development cycle. Building technical capacity in the public sector is a multi-year effort, and initiatives to strengthen these functions have expanded,” he said.

The PICC has concentrated its efforts over the past year on improved planning and decision processes.

National accounts estimates show that public- and private-sector capital spending increased in real terms by 4.3% and 4.6% respectively in 2011, and 11.1% and 4.3% in the first three quarters of 2012.

However, as a percentage of gross domestic product (GDP), capital spending has not yet recovered to the level reached in 2008, prior to the recession.

Nominal public-sector capital investment stood at 7.1% of GDP in 2011, with private sector investment at 11.9%.

The NDP points out that “to grow faster and in an inclusive manner, the country needs a higher level of capital spending. Gross fixed capital formation needs to reach about 30% of GDP by 2030, with public- sector investment reaching 10% of GDP, to realise a sustained impact on growth and household services.”

Gordon said improved and timely maintenance of infrastructure was also an important requirement for efficient transport, electricity and water service delivery.

The value of major infrastructure projects in progress or under consideration in the public sector totals R3.6 trillion.

There are also several private-sector projects identified in the strategic integrated projects of the PICC, bringing the total value of projects being considered to over R4 trillion. 
About 40% of these projects are in implementation.

But Gordon said for the remainder of projects, concept proposals had to be assessed for alignment with the priorities set out in the NDP, followed by rigorous feasibility evaluations.

“The trade-offs between technical viability, affordability, level of demand and financial feasibility needs to be assessed to ensure a selection of projects and sequencing of implementation that best meets the growth and development objectives of the country,” he said.

There has been a steady increase in overall infrastructure expenditure by the public sector, including capital and maintenance spending. However, Gordon admitted that there were many areas within government and the broader public sector where infrastructure delivery was weak, characterised by delays, poor planning, lack of project management capacity and inadequate oversight.

“While developing adequate capacity is a long-term project, a range of short- to medium-term interventions are contributing to this objective. Significant strides in improving the ability to deliver infrastructure will go hand in hand with improving the general capabilities, ethos and performance of the public service,” Gordon said.