16 September 2020

How well is South Africa positioned to continue planned infrastructure development projects post-Covid-19?

16 September 2020

South Africa is fighting hard against COVID-19 as confirmed cases continue to rise. Will funding this fight negatively impact its future infrastructure development?

At first glance the answer is ‘yes’. Monies to support unplanned-for countermeasures such as building temporary hospitals, procuring ventilators, equipping 60 mobile testing units, to name just a few, must be diverted from somewhere. And the decision to ban alcohol and cigarettes during Level 3 lockdown hit a critical source of tax revenue (estimated loss of $635 million/month on alcohol taxes alone). Of course, like everywhere else in the world, the tourism sector, an industry worth $25.5 billion USD to South Africa is effectively dormant, putting 1.5 million jobs at risk.

Yet, based on the Global Infrastructure Hub’s InfraCompass 2020 data, South Africa began experiencing a slowdown in infrastructure development well before the pandemic’s arrival. All but one of the eight drivers slid backward in rank from the year before, with Activity dropping the most at 21 places. The one driver that didn’t, Funding Capacity, merely stayed unchanged. It is difficult not to believe these trends will continue into 2021.

So yes, there will be a negative impact on the ‘what’ of infrastructure development - funding and activity. But what of the ‘how’? Could the pandemic be a positive force in how South Africa pursues future projects? Finance Minister Tito Mbowen gave a clue to this question in a recent speech to parliament:

“Infrastructure will be the ‘flywheel’ by which the country’s economy will grow. Just as we have toiled together to manage the pandemic, let us harness this same unity of purpose and build the infrastructure our nation needs.”

Treasury Director-General Dondo Mogajane backed this position by emphasising that infrastructure expenditure will be a priority in future budgets, saying, “This is to make sure that infrastructure remains the catalyst of growth that we want it to be. We have to reposition infrastructure, which will lead to a productive sector economy flourish in the way we want.”

Then on 23 June of this year, President Cyril Ramaphosa hosted the inaugural Sustainable Infrastructure Development Symposium South Africa (SIDSSA). The President highlighted the pandemic’s influence in his forward comments: “It is evident that unlocking the potential of South Africa’s economy requires a range of reforms in areas including infrastructure, regulation and operation of SOEs, and the investment climate for private enterprise. The pandemic made the need for these changes indisputable.” 

One aim of SIDSSA is to institutionalise a new way to package and prepare projects for funding. Referencing again Global Infrastructure Hub’s InfraCompass 2020 analysis, South Africa has much to improve in this area. Until now, low levels of foreign equity participation and PPP deals have restricted its ability to fund the necessary level of infrastructure development. Embracing sustainable and inclusive infrastructure may be the best way forward to better attract foreign investors.  

Though the pandemic may derail infrastructure projects in the short term, for South Africa it has been a catalyst for a positive outlook to infrastructure development. And perhaps allow the country to fully heed the words of Nelson Mandela, “It is in your hands to create a better world for all who live in it.”

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