By: Chris Charlton, MD, Consort
South African Infrastructure Development has been a talking point dating back to 2012, with the first real plan in the shape of the National Development Plan (NDP) being publish. This was then followed up in 2022 by the publishing of the National Infrastructure Plan (NIP). Combined, the plans made clear the need for sustained infrastructure development in South Africa. In theory, sustained infrastructure development driven by Government has the potential to kickstart the economy by providing a much needed stimulus to the economy via the multiplier effect, which basically means each rand spent on infrastructure is multiplied as it ripples through the economy. With stubbornly high unemployment and stagnant GDP growth, it’s not difficult to see the dire need for investment in infrastructure.
At a recent Symposium for Sustainable Infrastructure Development, held in Cape Town, President Cyril Ramaphosa set out some of the progress made in achieving some of the goals set out in the NDP and NIP. Some of the highlights were:
- The Division of Revenue Act has been amended to allow local municipalities to utilise their infrastructure budgets and grants along with private sector investment for large social infrastructure projects. These projects focus mainly on Health and Education
- The Public Private Partnership regulations have been amended and published for comment. The amended guidelines aim at pooling public and private resources for infrastructure projects
- Strategic Intergrated Projects (which is the Government’s massive infrastructure investment and build programme aimed at improving the lives of South Africans) has grown in value to R540 billion. These projects are primarily made up of water and sanitation, transport and logistics as well as energy.
- Eighteen projects have been completed to the value of R 10 billion.
- Current projects under construction amount to R 230 billion.
- Projects worth R 170 billion are in the procurement stage.
- Infrastructure South Africa has unblocked R 25 billion worth of Renewable Energy Projects via the Infrastructure Development Act’s fast tracking of Government authorisations.
- Infrastructure South Africa has published the first edition of the Construction South Africa book which showcases 153 projects across 5 state owned entities. The projects showcased are positioned to promote economic growth and provide much needed public services.
A key takeaway from the Presidents speech is that it seems that there is some activity in the construction sector, which is a welcome change. It must be noted however that in order to reach the goals set out in the NDP and NIP, the public sector would need to invest a further R 1.6 trillion and the private sector would need to invest a further R 3.2 trillion. The projects currently underway are therefore just the start of the ambitious programme. The momentum will need to ramp up quite a bit if the 2030 target is to be met. A caution must be noted however that sustained, healthy growth would be better than an absolute boom.
Another key point to note is the Government’s willingness and intention to partner with the private sector. Numerous amendments to procurement requirements for public sector projects have been made to better pool resources via Public Private Partnerships (PPP), for infrastructure projects. Most notably is the Renewable Energy Independent Power Producers Public Private Partnership Programme. This example of Public Private Partnership wasn’t without its challenges but it was the start of the Government’s realization that the private sector can contribute quite effectively in major infrastructure projects. The engineering insurance sector can see this as an opportunity to take hold of as the private sector is a profile that is familiar to the insurance market.
Whilst there is activity and a looming deadline, we have to keep in mind the current state of the South African Construction industry. Since the construction boom in 2010, the industry has been in constant decline, falling off a cliff in 2021. Only a fraction of the original construction companies exist and with much reduced capacity to fulfill the requirements of the NDP and NIP. The construction industry has the potential to provide millions of much needed jobs and therefore needs to be rebuilt if we are to realise the targets set for infrastructure development. President Ramaphosa did state that they are working on the rebuilding of the industry but didn’t provide details on how this was going to be achieved. The South African Construction industry needs to guard against relying too heavily on foreign resources during its vunerable period as this would nullify the stimulus to the economy and not achieve the sustainability that is desired. The reliance on foreign resources is also a threat to the insurance sector as premiums could more easily flow offshore again not contributing to the overall South African economy.
The South African Engineering and Construction Insurance industry has weathered the suppressed period well and is positioned to contribute to the sustainability of the current and planned infrastructure development. Product enhancement and development, especially in the Renewable Energy space, has taken place during the reduced economic activity period and the industry is made itself ready to respond to the uptick in activity. Insurers and Reinsurers in the engineering space have displayed resilience and maintained a healthy market that has sufficient capacity to account for the targets set by the NDP and NIP, without too much reliance on foreign capacity. The market should educate itself on the priority projects targeted by the NDP and NIP and contribute to the narrative, particularly in the PPP space, to ensure the momentum of infrastructure development is maintained and timeously rolled out so that the effectiveness can be maximized and the potential of the South African economy can be realized.