Engineering & Capital Goods News

Infrastructure delivery key to growing economy, creating local demand

The construction and development of infrastructure is critical to accelerating demand for associated goods and services, as well as to significantly boost the economy, Infrastructure South Africa investment and unblocking chief director Mashopha Moshoeshoe said earlier this month.

Speaking at the Southern Africa France Business Forum on June 22, he explained that the gap in infrastructure required in South Africa was significant, but that, as South Africa emerged from destruction and delays as a result of the Covid-19 pandemic, it was on a path to recovery.

“We have a roughly 15% level of gross fixed capital formation as a percentage of gross domestic product [GDP]. It was slightly higher before Covid-19.

“The National Development Plan has us chasing the target of 30%, which correlates to a 5% GDP growth target. We are trying to do it in a way that is labour absorptive,” he pointed out.

On a practical level, Moshoeshoe said this meant that the infrastructure backlog gap of between 15% and 25% requires about R600-billion a year in investment to catch up to levels currently required in terms of gross fixed capital formation.

“So, over the term, our real target is somewhere . . . around R3-trillion.”

“That is why it makes practical sense that government and the President [Cyril Ramaphosa] keeps talking about infrastructure being the flywheel in terms of GDP growth. It is meant to be that demand-side stimulus, and if we get demand, [then] we get projects,” he said.

Accelerating the rollout of large infrastructure projects, however, would need to be done in partnership with the private sector because the fiscus was constrained, noted Moshoeshoe.

Nonetheless, he pointed out that South Africa had emerged from the Covid-19 pandemic, from a fiscal perspective, “better than we could have hoped”, on the back of a commodities boom.

Rolling out infrastructure projects is where “the big multiplier opportunity exists”, said Moshoeshoe. This stimulates the supply side, he added, noting that this was not just in terms of labour, but also manufacturing of goods, such as cement, bricks and other elements, as well as associated services.

As for funding, Moshoeshoe noted that the issue was not about liquidity, but rather identifying and focussing on a quality pipeline of deliverable projects.

Going forward, he said that, from a global economy perspective, there would be more tightening of South Africa’s fiscus, but that the money to roll out projects still existed.

“The challenge is looking for good projects, and where we fundamentally fall short as the State is in our ability to appropriately package and prepare projects that have an element of a revenue stream for them to be able to attract private sector funding.”

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