Infrastructure is economy’s engine

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”.