As I assumed the role of minister of finance in August 2021, South Africa stood at a pivotal juncture in its history. Our nation had just weathered its most profound upheaval in nearly three decades: a storm of public violence, fuelled by simmering discontent and exacerbated by the hardships borne of Covid-19 pandemic lockdowns. It was a sobering reminder that the challenges and disparities below the surface could no longer be ignored.
These events, I firmly believe, were not isolated incidents but rather a culmination of a legacy, a legacy etched in the profound impact of apartheid, touching both human lives and infrastructure. However, it was also the outcome of a decade marked by stagnant economic growth, characterised by policy uncertainty and incoherence. The long shadow of apartheid continue to mean inequalities and infrastructural deficiencies, which are formidable barriers to our progress.
Yet in the two years since that critical juncture, we have chosen not to remain passive observers of our fate. Instead, we have built a path of proactive measures, reaffirming our commitment to clear and coherent policies that foster economic growth and fiscal sustainability. We have realised that investment in infrastructure is not merely an option but a fundamental linchpin upon which our economic aspirations hinge: a foundation upon which we must build equity, inclusivity and sustainability.
Urgent infrastructure investment
Amid a rapidly evolving climate transition, characterised by the pressing need for decarbonisation and the electrification of our economy, the call for infrastructure investment, as articulated by president Cyril Ramaphosa in 2020 with the launch of the Economic Reconstruction and Recovery Plan, resounds with undeniable urgency. It is a clarion call for transformation, encapsulating the essence of progress itself.
South Africa’s annual gross fixed-capital formation (GFCF) has been declining since 2015. While there has been recent improvement, it is imperative that we sustain an upward trajectory. Our public sector has earmarked significant infrastructure spending, but challenges remain, such as wastage, corruption and underspending due to capacity constraints remain.
The private sector, which contributes nearly two-thirds of the total GFCF, is a crucial partner in this endeavour. We must work hand in hand to boost confidence, remove investment impediments and create an enabling environment for private sector participation.
In 2019, we established the South African Infrastructure Fund to facilitate private sector involvement in government projects and support early financial closure. Regulatory amendments have enabled institutional fund managers to invest more in assets like infrastructure, thereby increasing the financing potential.
Furthermore, we have made strides in enabling municipalities to bring infrastructure projects to fruition. The Division of Revenue Amendments Act of 2022 empowered provinces to pledge infrastructure grants, leveraging additional financing to expedite infrastructure development.
In addressing the slowdown in public-private partnerships, we embarked on a comprehensive review. Lessons from past applications have highlighted the need for streamlined approval processes and a more responsive regulatory environment.
Infrastructure transcends mere bricks and mortar: it is the very lifeblood of economic development. It comprises the roads and railways linking our people to markets and opportunities; the power generation capacity that fuels industrial growth; the schools and hospitals nurturing our human capital; and the digital connectivity that bridges urban-rural divides.
The challenges we face
However, we acknowledge that our pursuit of this ambitious rebuilding faces formidable challenges. Fiscal constraints loom large on the horizon, and despite a resilient economic recovery from the scars inflicted by the Covid-19 pandemic, our medium-term economic growth remains subdued. The target of 5% annual growth, vital for making lasting inroads into our deep-rooted socioeconomic challenges, appears distant.
We are not alone in confronting these challenges. The International Monetary Fund predicts a global growth slowdown because of geopolitical tensions, inflation eroding household purchasing power and central banks tightening their policies. In such a complex global environment, we must view our own economic growth projections with cautious optimism.
Moreover, our aspirations are hampered by prolonged power failures and sub-optimal transport infrastructure performance, especially in freight rail and ports. These issues impede investment in productive sectors of our economy. It is imperative that we address these challenges head-on.
Transformation catalyst
Our National Electrification Programme, which ran between 1991 and 2014, serves as a powerful testament to our capacity for transformative infrastructure projects. It electrified vast portions of our nation, providing electricity to millions who were previously in the dark. It illuminated our homes, schools and businesses, improving lives and catalysing economic growth.
As we embark on the journey of decarbonising and electrifying our economy, we must learn the lessons of this past success. We must build consensus and political support for the energy transition, recognising that it cannot be taken for granted. Our vision for a just energy transition must be embraced by communities, civil society, trade unions and the private sector.
Similarly, South Africa’s hosting of the 2010 FIFA World Cup demonstrated our capacity to undertake ambitious infrastructure projects. We constructed or renovated 10 world-class stadiums, developed high-speed rail links and improved road networks. These investments transformed our nation and showcased our potential on the global stage.
Climate transition opportunity
Today, the climate transition offers an opportunity to replicate these successes. It is a chance to invest in infrastructure that not only drives economic growth but also addresses our pressing climate and developmental goals. A convergence of technical and financial capacity, coupled with unwavering political determination, is essential to achieve our ambitious targets, both domestically and on the global stage.
South Africa’s Just Energy Transformation Investment Plan (JET IP) sets out the scale of financing needed: R1.5tn ($79.3bn) over the initial five years to meet the country’s climate change mitigation targets and ensure a just energy transition for affected regions, communities, employees and industries.
International financing pledges of $8.5bn have been made to support the South African JET IP. The JET Partnership with the International Partners Group has attracted additional global pledges in the past year.
Multiple financing instruments and sources are needed and welcome. It must be noted that concessional loans in a constrained fiscal environment require bespoke financial structures to be designed, and solutions can be complex. The support of international partners is paramount.
In conclusion, South Africa’s infrastructure imperative is a narrative of hope and opportunity, one that resonates with professionals, policy-makers and advocates of sustainable development alike. It is a story of resilience, determination and the unwavering belief in our nation’s potential. As we navigate the challenging terrain of fiscal constraints and global uncertainties, let us draw inspiration from our past successes and boldly embrace the transformative power of infrastructure investment. It is the path to a brighter, more equitable future for all South Africans.
Enoch Godongwana is minister of finance of South Africa.
