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A new strategic path for state-owned entities that will improve their ability to create jobs, enable inclusive growth and become financially sustainable, was one of the primary announcements made by President Cyril Ramaphosa in his 2019 State of the Nation Address.

He also envisaged a comprehensive overhaul of the way in which infrastructure projects will be managed in the future, including a more effective utilisation of professional skills within the public sector – and more partnerships with the private sector.

Speaking in Parliament, President Ramaphosa made repeated references to the need to accelerate inclusive economic growth and emphasised the role of strategic state-owned enterprises and well-managed investments in infrastructure to achieve this objective.

A critical factor is government’s initiative to mobilise resources and attract investments in the provision of infrastructure. More than R1.3 trillion has been invested in the past five years and this has become “the flywheel of the engine of our economy”.

However, infrastructure development has slowed down for a number of reasons. A primary concern is that infrastructure provision is too fragmented between the different spheres of government. There is a lack of integration between projects aimed at housing development, physical infrastructure and social amenities.

Government is, therefore introducing “a new infrastructure implementation model” to address these issues. This will be underpinned by the new Infrastructure Fund announced by President Ramaphosa in September 2018.

The key features of the new implementation model are:

• An initial R100bn allocation into the Infrastructure Fund will be used to leverage further funding from the private sector and development finance institutions.
• The emphasis will be on “deeper partnerships” between public sector entities in the planning, building and maintenance of infrastructure.
• The technical capacity in government will be strengthened by building a pool of engineers, project managers and spatial planners. They will form “action teams that can make things happen faster on the ground.”
• The capabilities of the state and the private sector will be merged to address infrastructure challenges.

Steps taken include the appointment of new boards to entities that have suffered from an absence of good governance, and the establishment of a Presidential Council on state-owned enterprises (SOEs). This council will provide political oversight and strategic management, reposition and revitalise entities and ensure they can play a role as catalysts of economic growth and development.

Where such entities are not able to raise sufficient financing from the fiscus, banks, capital markets and development finance institutions, government will explore other mechanisms such as strategic equity partnerships or selling off non-strategic assets. However, this will not include the disposal of assets that are “strategic to the well-being of the economy and the people”.

A pronounced shift towards future investment in infrastructure – including the construction and rehabilitation of sections of the national road network – was one of the prominent features of the 2018/19 Budget.

Delivering his first budget speech, Finance Minister Tito Mboweni allocated an additional R3.5bn to SANRAL over the next three years to improve non-toll roads. This represents an increase of an average annual rate of 25.5% – from R6.9bn in 2018/19 to R13.7bn in 2021/2022.

However, this should be viewed against a reduction of R5.8bn in 2018/19 to meet SANRAL’s cash requirements for the Gauteng Freeway Improvement Project (GFIP). Thus, transfers for GFIP are expected to decrease from R6.3bn in 2018/19 to only R633m in 2021/22.

Mr Mboweni did not step back from his earlier support for the user-pay principle expressed in his 2018 medium-term budget speech in which he called on people to pay their e-tolls. This time around he said: “I emphasised the importance of the user-pay principle. It is a principle which we should uphold. In any future negotiations this should be borne in mind.”

Contained within the Department of Transport’s budget of R64.2bn are some indications of major road construction projects that are on the cards. Among these are:

• 5bn for all non-toll roads over the medium-term period
• 3bn for the upgrade of the Moloto Road (R573)
• 2bn for the construction of the two bridges on the N2 Wild Coast Road
• Major allocations for the upgrades to the N2 (Cape Town), N3 (Mariannhill) and N2 North and South Roads
• The resurfacing of 3 300km and improvements to 1 500km of roads, upgrading of intersections to interchanges and the building of new interchanges and bridges.

The budget notes that SANRAL will continue to focus on its programme to undertake preventative maintenance to preserve and improve the national road network. Total expenditure is expected to increase at an average annual rate of 5.1% – from R33.2bn in 2018/19 to R38.6bn in 20201/22.

The bulk of SANRAL’s total expenditure comprises payments to service providers for routine road maintenance and construction. As a result, goods and services expenditure accounts for 74.3% of total expenditure over the medium term.

SANRAL also expects its personnel to increase by 98 over the medium term – from 392 in 2018/19 to 490. This means an increase in expenditure on compensation at an average annual rate of 17.5%.

The agency generates revenue from transfers from the Department of Transport – for the non-toll network – and fees on the toll network. Revenue is expected to increase from R25.6bn in 2018/19 to R29.3bn in 2021/22. This includes an expected increase in toll revenue at an annual rate of 1.9%.

Minister of Transport, Dr Blade Nzimande, recently provided details of the projects that will be rolled out as part of the economic stimulus package that was announced by the President in 2018.

The additional R3.5bn over three years announced in the national budget in February will unlock a total of R13bn worth of investment in national road infrastructure over the medium term. The projects will include economic and social infrastructure that is intended to unlock economic growth while also providing much needed access to communities and stimulating local economies. The delivery model for the projects will have a strong job creation and SMME development focus. The projects will also pursue an urban-rural balance.

This is SANRAL’s response to the call made by President Cyril Ramaphosa at the earlier investment summit to have shovel-ready projects in place to support the country’s economic stimulus plan.

Dr Nzimande said infrastructure investment is a critical element of government’s plan to get the economy working. The primary road network managed by the South African National Roads Agency is the backbone of the transport system.

“Without a well-designed and well-maintained primary road network we will not be able to attract investments that can serve as catalysts for balanced economic growth, instil business confidence, create jobs and contribute to the fundamental transformation of our society,” says the Minister.

SANRAL is ramping up its investment in road infrastructure back to familiar levels through its R70bn medium term budget allocation to implement construction and maintenance projects across the country.

“This increased investment will rejuvenate the construction and engineering sectors, create jobs and support the growth of small and medium enterprises,” says Skhumbuzo Macozoma, CEO of SANRAL.

SANRAL’s 2019/20 budget for the construction of roads, rehabilitation and maintenance projects is set at R24.4bn. This will grow at an average rate of 5.1% over the medium-term framework reaching a total of R70bn. This budget includes the R3.5bn stimulus package allocation that was recently announced by the Minister of Transport.

Macozoma says this ramp up on road infrastructure spending follows a difficult 18-month period of subdued expenditure. “We are happy that the majority of the challenges we experienced with National Treasury which affected our tender processes have been addressed. SANRAL affirms its commitment to comply with applicable procurement regulations, while ensuring inclusive participation in its projects.”

SANRAL’s investments will bring relief to the broader construction sector that is currently experience a downturn in business. There are projects in the pipeline, and this will contribute to an upswing in construction activities.

Macozoma says that SANRAL will soon establish supplier development desks at its regional offices to ensure structured assistance to suppliers including contractors, consultants and material suppliers. This will be enabled by the numerous partnership agreements that SANRAL is pursuing with big industry players in the areas of equipment supply, mentoring, material supply, business and financial management.

The annual adjustment to toll tariffs came into effect on 1 March 2019. It is in accordance with the CPI over the proceeding twelve months, which has been calculated as 4,583%.

The adjusted tariffs apply on the N3 toll road between Johannesburg and Durban, on the N4 between the Mozambican border and the Botswana border as well as on the toll sections of the N1, N2, N17, N12, R30 and R21. They also apply to the GFIP toll roads. The CPI adjustment also affected the monthly caps applicable to the GFIP toll roads.

The adjustments are made on an annual basis to keep the toll tariffs aligned with inflation rates.

The effect of inflation means that every rand buys a smaller percentage of a good or service. As the average inflation rate is used to decide the adjustment, this means that there is no increase in real terms.

Toll monies are used cautiously, only to maintain and improve toll roads. Toll roads are built at no cost to the fiscus – the concept of toll roads is to apply a user charge only to those who benefit from the use of the road.

SANRAL uses tolling selectively. Only 2 952km of the 22 214km road network that SANRAL is responsible for constitute toll roads.

Toll roads are a prime example of a public-private partnership which makes capital available up front for important and expensive infrastructure projects. It also allows for continued maintenance not done at taxpayer’s expense. Roads that are not regularly maintained will require repairs. The cost of major reconstruction can be up to 18 times higher than it would have been if routine preventative maintenance was undertaken.