General government to invest R500bn in infrastructure over the next three years

But funds are being diverted from the Infrastructure Fund for the 2021 public service wage agreement.
Image: Shutterstock

An estimated R500 billion will be invested in general government infrastructure over the next three years, according to the Medium-Term Budget Policy Statement (MTBPS).

However, the 2021 public service wage bill agreement will divert funds from the Infrastructure Fund.

The MTBPS said the 2021 wage agreement provides for a pensionable increase of 1.5%, as provided for in the 2021 Budget, but also a once-off non-pensionable cash gratuity of R1 000 after tax per person per month, which was not budgeted for.

“This gratuity is expected to cost government R20.5 billion in the current year, with a preliminary carry through of R20.5 billion in 2022/23 if no new agreement is reached.

“In 2021/22, the gratuity will be largely funded by additional revenue, and will require shifting funds from the Infrastructure Fund, with a provisional allocation of R20.5 billion for 2022/23 included in the fiscal framework,” it said.

Read:
SA fund targets R100bn for infrastructure by 2022
Government unveils R595bn pipeline of new infrastructure projects

A total of R2.3 billion has been allocated in the MTBPS to help businesses rebuild following the third wave of the Covid-19 pandemic and the destruction of infrastructure in Gauteng and KwaZulu-Natal.

Of this amount, R700 million is being reprioritised from the Departments of Trade, Industry and Competition and R300 million from the Department of Small Business Development.

Finance Minister Enoch Godongwana said on Thursday that the Economic Reconstruction and Recovery Plan identifies infrastructure development as a critical component of changing the country’s fortunes.

Read: SA’s infrastructure drive ‘is gaining momentum’

Gondongwana referred to the 65 priority infrastructure projects valued at R340 billion that were gazetted last year and the additional 55 new projects from various sectors valued at R441 billion that were recently unveiled.

He stressed the government will need partnerships with the private sector to fill this funding gap.

Gondongwana said the Infrastructure Fund is an important intervention towards the government’s strategic goal of ensuring that total investment in public infrastructure is nearly 30% of gross fixed capital formation by 2030, as envisioned by the National Development Plan.

The MTBPS said gross fixed-capital formation has improved marginally in the current year but remains well below pre-pandemic levels, adding that investment in the second quarter of 2021 amounted to about 14% of GDP, compared with the National Development Plan target of 30% , following a 13-year decline since 2008.

It said private investment, the largest component of fixed capital formation, has been slow to recover from the lows of 2020.

This was attributed to weak confidence and demand, and persistent structural constraints, such as inadequate electricity supply.

Government investment has continued to decline, it added.

Godongwana stressed that the government will maintain its commitment to the Infrastructure Fund, including allocating R100 billion over a decade from 2019/20, as communicated in the previous budget.

The MTBPS said the Infrastructure Fund amounts are assumed at R10 billion in 2024/25, R12 billion in 2025/26, R15 billion in 2026/27, R21.8 billion in 2027/28 and R26 billion in 2028/29.

Godongwana said further work is being done to unlock more infrastructure projects for execution.

He added that there is strong collaboration with government departments and other institutions, such as Infrastructure South Africa and the Development Bank of Southern Africa, to prepare four projects with an investment value of R8.4 billion in the telecommunications, water and sanitation and transport sectors.

Godongwana said the facilitation of trade across South Africa’s borders is an important enabler of economic activity, especially as the African Continental Free Trade Agreement is being implemented.

“Across our continent, infrastructure is underdeveloped, and systems are outdated, resulting in inefficiencies and long delays. This also breeds criminality,” he said.

The MTBPS said capital investment has been adversely affected by the national lockdowns, contributing to underspending, but joint initiatives by the National Treasury, the Infrastructure Fund and Infrastructure South Africa aim to improve the scale, speed, quality and efficiency of infrastructure spending.

“This mainly involves creating a credible pipeline of projects, conducting project appraisal and technical analysis, and attracting private-sector participation and financing,” it said.

Public-private partnerships (PPPs), as previously signaled by the government, are set to become more important in delivering infrastructure.

The MTBPS said National Treasury completed its review of the public-private partnerships framework in May 2021 and policy changes based on the recommendations will be announced in the 2022 Budget.

It said the recommendations include simplifying the regulations, eliminating delays in approval and implementation, and standardising project preparation, and building capacity at all levels of government.

The 2021 Budget stated that the scope of the municipal infrastructure grant would be expanded to help municipalities improve their asset management practices but the MTBPS confirmed that this change has been delayed.

It said this means funds will not be allocated to a new indirect component of the grant at the beginning of 2022/23.

“Funds may be transferred during the year if the Department of Cooperative Governance and Traditional Affairs does the work required to identify municipalities that need this intervention,” it said.

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