Chris Charlton, Managing Director at Consort Technical Underwriters
On the 11th of March 2022, the Minister of Public Works and Infrastructure, Patricia De Lille, published the National Infrastructure Plan 2050 (NIP). The objective of the plan is to provide a roadmap with some really clear objectives and measurables to ensure South Africa starts to achieve the goals set out in the National Development Plan (NDP) that was published way back in 2012.
South Africa is in desperate need of the long awaited infrastructure spending to gain growth momentum and pull its economy out of the mud it currently finds itself in. With stubbornly high unemployment rates and little to no growth in the GDP, South Africa is on the edge of a prolonged full blown recession. Public infrastructure spending has been proven to be a good stimulus to jump start an economy due to its multiplier effect, which basically means that for every rand that the public sector spends there is a multiple spends by the private sector and hence a ripple effect through the economy. There is however a condition to the multiplier effect and it hinges on timing. Timeous spending, without delays and unnecessary roadblocks in getting projects completed will maximise the effect but delayed or drawn out public sector spending, as we have seen with previous infrastructure plans nullifies any progress that may be made by the stimulus.
With the publication of the National Infrastructure Plan, it seems there has been a realization of where South Africa’s infrastructure has fallen short and what is needed for South Africa to move forward into the modern world. The plan is focused on the development of what it calls the “mission critical network infrastructure”, which is comprised of Energy, Freight Transport, Water and Digital Communications. The price tag assigned to meeting the infrastructure requirements exceeds R6 trillion with Energy and Transport accounting for the bulk of the spend. The plan takes an honest look at each of the sectors making up the critical network and sets out what it needing to achieve with a big focus on a public-private partnership model for all aspects of the projects from planning, financing and delivery. A key area of the plan is around how to deliver the projects sustainably.
South Africa’s construction and engineering sector have been decimated of late and this is a concern for the deliverability of the Infrastructure Plan. With the majority of the larger, well resourced players either closing their doors or dramatically changing their operating models over the last decade, there is a huge opportunity for the remaining construction companies as well as the up and coming mid cap companies to position themselves and take hold of what’s coming down the line. Positioning along the lines of the priorities of the Infrastructure Plan being Energy, Transport, Water and Digital should ensure that the engineering and construction sector can achieve some really good growth following the covid induced free fall of 2020.
The South African engineering insurance sector has withstood a suppressed market for many years now. The size of the market has remained relatively stagnant and opportunities have been few. The private sector has contributed in keeping the construction industry somewhat afloat during this time but the sector has been in a holding pattern. A result of a stagnant market and few opportunities is immense pressure on premiums and the increased risk of poor quality being delivered. The engineering insurance market has remained resilient and shown its worth by sticking by the construction sector and being available when adversity struck even through the tight market conditions. Covid, the July Riots and most recently, the KZN Floods have proven the need for a strong, well resourced Engineering Insurance sector.
There now seems to be some light at the end of the tunnel. The Infrastructure Plan, National Budget Allocation and a good focus on Infrastructure Development by the President’s SONA, it seems we are not merely still making plans to make a plan. It is early days but there is some measurable activity taking place, for example, SANRAL already has 9 projects valued at R 18 billion currently underway as well as a further R 20 billion having been awarded.
As an insurance sector, we have been given the opportunity to position ourselves accordingly to take hold of the upcoming growth and continue to provide value and sustainability to the sector and do our part in seeing the full effect of the National Infrastructure Plan realized with South Africa being firmly placed on an upward growth trajectory, achieving some of its massive potential.