Infrastructure

The need for continued investment in the infrastructure network is echoed by The South African Institution of Civil Engineering (SAICE) in their third Infrastructure Report Card (IRC), released in September 2017. While noting the remarkable strides South Africa has made in the last 20 years - for example, the provision of water to 11 million people at a pace unrivalled in history - the report drew attention to the clear link between well-maintained public infrastructure and the social and economic health of a country.

Infrastructure projects serve a number of objectives, Hoosen explains: “Large infrastructure projects are aimed at establishing SA as a competitive economic player, and improving the ease and cost of doing business. Energy has been a key focus. South Africa had an energy problem in 2008. There were electricity blackouts. With Medupi and Kusile power stations coming into operation, we have stabilized the grid and we now have surplus energy capacity. That has been very significant.”

At the same time, infrastructural development contributes to the building of a more inclusive economy and to social development and service delivery. “Housing, schooling, water and sanitation are all very important in terms of social impact. There is a lot to be done, but schools, hospitals, and the like are being rolled out on a daily basis.”

Attracting investment
Infrastructure is a necessary enabler of economic growth, but it also creates opportunities to build complementary businesses and skills, and to attract local and foreign investment and partnerships. Hoosen explains the DTI’s role: “Part of what we do is consider how we can industrialise the inputs in the development of infrastructure. We look at a sector and what is needed and we see how we can build manufacturing capability, attract investment and support industrial development.”

International management consultancy firm McKinsey identified public-private partnerships as a key part of helping to improve infrastructure productivity, which in turned they identified as one of the five priorities for inclusive growth in South Africa. Indeed they estimated such partnerships could make infrastructure spending up to 40% more effective.

By way of example, the African Union designated South Africa as the rolling stock hub for the continent. There is significant scope for growth, investment, skills development and job creation in this sector. Gibela, a consortium between Alstom, Ubumbano Rail and New Africa Rail, is currently building a cutting-edge US$75m (R1bn) train manufacturing facility outside of Johannesburg. The facility will eventually employ over 1500 people on site. Many more will be employed by component manufacturers in the adjacent rail industrial park, says Hoosen: “Multinational companies like GE and Siemens are already involved in producing components locally in South Africa.”

In the 2017 budget, US$151m (R2bn) was allocated for industrial infrastructure in special economic zones (SEZs) and industrial parks, investment-friendly environments that will attract foreign and domestic businesses. The intention is to create centres that bolster export-focused manufacturing, increase international competitiveness and create jobs. A number of incentives are in place to offer investors a good value proposition. Furthermore, the recent creation of the National One Stop Shop in Pretoria, designed to provide a central service point for investors, will continue to encourage investment by simplifying administrative procedures and promote key high yield sectors.

There are various tax incentives and tariff exemptions, including a preferential 15% corporate tax rate and an employment tax incentive. Businesses and operators located in a customs controlled area of a SEZ will be eligible for tax relief in terms of the Value-Added Act. The 12I Tax Incentive is designed to support capital investment and training for Greenfield investments (new industrial projects that utilise only new and unused manufacturing assets), and Brownfield investments (expansions or upgrades of existing industrial projects). Other incentives include tailormade hard infrastructure, as well as a building allowance.

These SEZs are being rolled out in all provinces. Each SEZ is geographically designated and has a specific focus. For instance, the Atlantis SEZ on the Cape West Coast is focused on greentech and, specifically, the booming renewable energy industry. The priority sectors for Maluti-A-Phofung SEZ in the Free State are agriculture, agro-processing, automotive and logistics. Coega, in the Eastern Cape, is adjacent to a deepwater port of Ngqura and was developed to attract investment from the automotive, agro-processing, chemical, general manufacturing, business process outsourcing and energy industries.

Key contributors
Transport infrastructure has been identified as a key contributor to the country’s competitiveness, and, as such, is an important focus in terms of infrastructure spend. Like many developing countries, South Africa is experiencing an increase in road traffic, as well as rapidly increasing urbanisation, both of which take their toll on the national road network. The upgrading of the rail infrastructure is intended to shift transport, particularly of bulk materials and mined resources, off the roads.

High-speed internet connectivity is another area that is identified as key to the country’s growth and development. In the 2017 national budget, US$143m (R1.9bn) was allocated over the medium-term for broadband. “We have to invest in technology infrastructure if we are to be part of the fourth industrial revolution,” say Hoosen. The potential for improved connectivity to drive societal development was underlined in the UN’s ‘2030 Agenda for Sustainable Development’ report, stating “the spread of ICT and global interconnectedness has great potential to accelerate human progress”.

SA Connect is the government's ambitious national broadband policy which aims to deliver widespread broadband access to 90% of the country's population by 2020, and 100% by 2030. The first phase focuses on supplying broadband to schools, health facilities and public buildings.

This is an area where the private sector - in this case the ICT industry - plays an essential role. Hoosen says, “Again, as the DTI, our task is to look at what components can be localised. There is a role for the private sector and opportunities for investment. We are also working with local entrepreneurs in this regard.”

While South Africa faces great demands on its infrastructure, Hoosen says, “Infrastructure projects are large and long-term. So far, South Africa has been on track and continues to be so”.