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Inclusive Society Institute
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All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means without permission in writing from the Inclusive Society Institute
DISCLAIMER
Views expressed in this report do not necessarily represent the views of the Inclusive Society Institute or those of their respective Board or Council members. All records and findings included in this report, originate from a panel discussion on developing a new economic blueprint for South Africa, which took place in August 2022
Author: Mariaan Webb, Creamer Media Writer
Edited by: Daryl Swanepoel
This report has been enabled through the generous support of ASLA
Contents
1. Abbreviations & acronyms
2. Introduction
3. Market dynamics and trends
4. Mechanisms to support infrastructure investment
5. Challenges in infrastructure investment
5.1 Ineffective State institutions
5.2 Failure to implement programmes
5.3 SoE financial constraints
5.4 Budget underspending
5.5 Inappropriate SCM and procurement practices
5.6 Tardy tender processes
5.7 Delivery performance deficiencies
5.8 Construction mafia
6. Recommendations
6.1 Support rebuilding State capacity
6.2 Professionalise the public service
6.3 Elevate project leadership
6.4 Transform supply chain management
6.5 Reimagine procurement
6.6 Establish effective delivery management systems
6.7 Prioritise value for money
6.8 Delegate essential functions
6.9 Leverage the private sector
6.10 Boost construction confidence
6.11 Tackle the construction mafia
7. Conclusion
8. References
1. Abbreviations & acronyms
GDP gross domestic product
GFCF gross-fixed capital formation
IRC Infrastructure Report Card
ISI Inclusive Society Institute
JSE Johannesburg Stock Exchange
MFMA Municipal Finance Management Act
MTEF medium-term expenditure framework
NDP National Development Plan
PFMA Public Finance Management Act
PPP public-private partnership
Sanral South African National Roads Agency Limited
SCM supply chain management
SoE State-owned enterprise
2. Introduction
South African economic growth has languished in the aftermath of the 2008 global economic crisis, persisting in a state of fragility, owing to a combination of global and domestic factors. Globally, the past 15 years has seen long periods of low commodity prices and devastating shocks including the Covid pandemic and the war in Ukraine. Domestically, challenges such as chronic power shortages, a faltering transportation infrastructure, particularly within the freight logistics system, and alarmingly elevated crime rates, have collectively imposed substantial impediments to the investment necessary for sustainable economic growth.
The construction industry ought to be a cornerstone upon which the foundation of the economy is laid. However, the current state of the sector in South Africa falls short of the vigour and vitality it has historically possessed.
The contribution of industry – comprising mining, manufacturing and construction – to gross domestic product (GDP) has been declining steadily in the last three decades, from 31.2% in 1994 to 24.4% in 2022 (World Bank, 2023). The prolonged underperformance can be traced back to a range of factors, including subdued investment levels, diminished confidence, unsustainable undercutting on tender prices and a surge in organised crime activities (Treasury, 2023).
As part of its economic research, the Inclusive Society Institute (ISI) has undertaken an extensive series of dialogues with various sectors of the economy, which reveal the need for attention to three areas to propel the nation towards economic prosperity. These areas are electricity; economic infrastructure; and the troubling issue of youth unemployment. Addressing these three components should act as a catalyst, setting in motion a chain reaction to rebuild the economy.
Recognising the need for innovative solutions, the Institute is actively engaged in economic modelling to assess macroeconomic proposals for financing infrastructure development. South Africa’s current economic model falls short of delivering the quantum leap required to revitalise and upgrade infrastructure, especially in a country with a growing population, high unemployment and sluggish economic growth.
The unemployment rate was recorded at 32.6% (narrow definition) in the second quarter of 2023, with 7.92-million people unemployed. According to an expanded definition of unemployment that includes those discouraged from seeking work, 42.1% of the labour force was jobless in April to June 2023. In a reflection of how the past decade’s anaemic growth has affected joblessness, nearly three-million more people have become unemployed since the second quarter of 2013 (Statistics South Africa, 2023a).
Economic growth is hovering below 2%, a pace insufficient to make significant strides towards achieving economic objectives. Despite reaching a peak of R4.6-trillion in 2022, the economy has only managed 0.3% growth since the prepandemic figure of R4.58-trillion. This growth lags the 3.5% rise in the country’s population over the same period (Statistics South Africa, 2023b). According to Statistics South Africa, six industries are still struggling to regain their prepandemic production levels. Among them, the construction sector finds itself in the most dire situation, remaining 23.1% smaller than what it was before the pandemic. To compound its woes, the construction industry’s decline predates the onset of Covid-19. Indeed, 2022 marked the sixth consecutive year of economic contraction for the sector, rendering it a mere shadow of its former self (Statistics South Africa, 2023b).
The persistent economic stagnation in South Africa is significantly exacerbated by infrastructural challenges, most notably within the beleaguered rail sector. Chronic underinvestment and mismanagement have contributed to a dramatic collapse in services. Statistics reveal the severity of the situation, with the volume of freight transported by rail plummeting by 31% since 2017. Inefficiencies stemming from these rail woes are estimated to have imposed a cost of R250-billion on the economy in 2022 alone. Passenger rail services have not been immune to the challenges plaguing the rail system. In 2015, there were about 500-million Metrorail passenger trips, a figure that had plummeted to a mere 8.56-million in 2021 (Swanepoel, 2023).
The ISI’s research underscores a critical imperative: for South Africa’s economy to achieve meaningful progress, it must aspire to growth rates of at least 4% to 5%. The current status quo is untenable and simply relying solely on anti-corruption measures and basic reforms will not suffice to attain higher economic growth.
The Institute is conducting dialogues with diverse sectors to glean insights and perspectives aimed at accelerating economic growth. During its recent summit with the construction industry, the ISI delved into the development requirements for both social and economic infrastructure, which are pivotal in reshaping the trajectory of the South African economy. Additionally, the summit explored strategies for positioning the construction industry optimally to meet the demands and deliver the urgency needed.
3. Market dynamics and trends
The construction industry in South Africa has undergone a dramatic change in the past 15 years, transitioning from a powerhouse to a struggling industry. In the early 2000s, blue-chip construction companies were among the top performers on the Johannesburg Stock Exchange (JSE), raking in significant profits. However, the once-thriving sector has seen its fortunes decline sharply. Some companies have collapsed, while others exited the industry altogether. Basil Read and Group Five, once prominent names, have faced financial crises and eventually collapsed. Murray & Roberts shifted its focus away from construction and entered the oil and gas engineering services sector, while Aveng narrowly survived a financial crisis. Today, WBHO is the biggest construction company on the JSE.
The sector’s downturn can be attributed in part to the government’s failure to deliver on promised infrastructure projects. WBHO says in its 2022 Annual Report that the rollout of the R800-billion infrastructure development plan announced in the 2021 Budget had gained little traction, particularly following the cancellation of major projects by the South African National Roads Agency Limited (Sanral) during that year. Sanral in May 2022 cancelled and ordered the retendering of construction projects worth R17.4-billion, owing to what it claimed was a material irregularity in the tender process. By November, four of the five tenders had been re-awarded, with tenders worth R6.65-billion going to joint ventures led by foreign contractors.
Despite facing fiscal constraints, South Africa continues to increase the budget allocation for infrastructure every year in a bid to direct public spending towards productive capital investment. In the 2023 Budget, the Finance Minister detailed a R903-billion infrastructure plan for the medium term, of which R351-billion will be spent on transport and logistics infrastructure, including roads, and R133-billion on water infrastructure.
High levels of capital investment, or gross fixed capital formation (GFCF), typically indicate a positive outlook for future economic growth, while low levels of investment can be seen as a sign of stagnation or declining confidence.
Low levels of economic growth have dampened both public and private-sector fixed capital investment, including investments in the construction industry. Although GFCF recovered to 14% of GDP in 2022, from a low of 13% in 2021, investment remains well below the National Development Plan: Vision 2030 (NDP) target of 30% by 2030 (Masondo, 2023).
Investment in infrastructure has a high output multiplier effect, or significant impact on the overall economy. The construction industry, in particular, has a strong ability to create additional economic output and jobs, especially for unskilled workers.
Public and private sector capital investment as a share of GDP falls below NDP target
Source: 2023 Budget Review
Achieving the NDP objective hinges significantly on investments made by the public sector, including State-owned enterprises (SoEs). However, public sector spending has experienced a notable decline, plummeting from 7.3% of GDP in 2015, to a mere 5.4% of GDP in 2019 (Masondo, 2023).
Beyond statistics, the gradual decline in GFCF, especially in public sector investments, has tangible repercussions. It is felt in a lack of investment in crucial areas, such as rail, ports, water infrastructure, sanitation, public transport, electricity and housing. This deficiency disrupts the synergy between public and private capital formation. An increase in public infrastructure raises the productivity of private capital, as public capital is a complement to private capital. Higher private capital increases the productivity of labour and leads to higher wages, which encourages more work and incentivise higher investment in private capital.
State of Public Infrastructure in South Africa: A Declining Trend
The condition of public infrastructure in South Africa has seen significant decline over the years, as reported in the South African Institute of Civil Engineering’s (SAICE’s) Infrastructure Report Card (IRC).
Sixteen years ago, the original IRC assessment graded the country’s infrastructure at a D+. Following heavy investments in new infrastructure for the 2010 FIFA World Cup, the grade improved to a C– in 2011.
Subsequent years revealed a persistent neglect of maintenance, resulting in a decline to a D+ grade in 2017. In 2022, the IRC paints an even bleaker picture, awarding South Africa’s public infrastructure the lowest-ever grade recorded by SAICE, a D.
In the current assessment, only three subsectors exhibit improvement, while a worrying 12 subsectors have witnessed deterioration. Of the 13 subsectors in which grades remained unchanged, ten were already at risk of failure or worse.
When assessed collectively, it becomes evident that a significant portion of South Africa’s infrastructure is nearing a state of potential failure. While there are isolated instances of well-managed and excellent infrastructure, these have become the exception rather than the norm.
The SAICE scorecard highlights that while economic infrastructure, with the exception of energy generation, generally maintains a satisfactory condition, social infrastructure presents a grim picture. The further degradation of social infrastructure, including access to basic services like water, sanitation, health, education, public transport and electricity underscores the challenges ordinary citizens face daily.
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Source: SAICE 2022 Infrastructure Report Card for South Africa
The contraction in investment can be attributed to a range of factors, encompassing a general shortage of fiscal capacity within the government, underspending of allocated budgets for infrastructure projects, protracted delays in the awarding and completion of infrastructure contracts and the acute financial constraints confronting SoEs, such as power utility Eskom and freight logistics group Transnet.
4. Mechanisms to support infrastructure investment
The statistics concerning gross-fixed capital formation (GCCF) present a sobering outlook for South Africa. Nevertheless, there are grounds for optimism regarding the potential resurgence of investment in the coming years. Deputy Finance Minister David Masondo has identified several mechanisms that could serve as catalysts for this revitalisation.
Infrastructure Fund: With large-scale investment touted as the tried and tested way to boost economies in the short term, the Infrastructure Fund was created in 2019 to address the need for blended finance to enable the efficient execution of infrastructure programmes and projects in South Africa. Currently housed in the Development Bank of Southern Africa, the Infrastructure Fund’s aim is to transform public infrastructure through blended financing solutions by sourcing and blending capital from the private sector, institutional investors, development finance institutions and multilateral development banks.
Pension investments: Regulation 28 of the Pension Fund Act has been amended to allow institutional fund managers to invest more in assets such as infrastructure. The aim of the amendment is to explicitly enable pension funds to invest in infrastructure such as roads, renewable energy and ports. To this extent, the amendments introduce a definition of infrastructure as an asset class and set a limit of 45% exposure in South African infrastructure investment. The setting of such a maximum limit was regarded as a more ‘market-friendly’ response to calls for the introduction of ‘prescribed asset requirements’, which would have set a minimum level for pension fund investment in infrastructure projects.
Division of Revenue Amendments Act: Through the 2022 Division of Revenue Amendments Act, government has enabled provincial governments to pledge their infrastructure grants to leverage more financing to fast-track the rollout of infrastructure. Pledging effectively is a means by which a province secures a loan through borrowing with a view of using or issuing a guarantee, indemnity or security as the conditional grant for the repayment of that loan. The conditional grant or portion of the conditional grant for the current financial year’s allocation and future financial years’ indicative allocations for the province are committed towards the repayment of the loan taken.
Public-private partnerships (PPPs): Following a slowdown of PPPs, government has initiated a review to consider lessons learned from the application of the current PPP framework over the past eight years. The review found that there are too many steps and multiple approval bottlenecks. A lack of capacity, especially at the municipal level, led to reduced uptake for PPP projects. PPP regulations also applied to all projects, regardless of size. At national level, an incongruency between budget cycle and the PPP planning time has been highlighted.
Masondo has said that a uniform planning tool for all infrastructure will be implemented and that this will mainstream the PPP cycle to link up with the Budget process. Further, while the review found that there is no need for a complete overhaul of the PPP legal and regulatory framework, some lengthy approval processes will be changed to speed up project implementation.
Budget allocation: Government uses Budget allocations to support fixed capital formation. Overall, R903-billion will be spent on infrastructure projects over the medium-term expenditure framework.
5. Challenges in infrastructure investment
5.1 Ineffective State institutions
Despite substantial allocations, executing infrastructure programmes often have poor outcomes, owing to ineffective State institutions. Given the substantial mandate and resources at its disposal, the State’s underperformance raises serious concerns. The capacity and credibility of South Africa’s institutions were significantly undermined during the tenure of the Jacob Zuma administration. While the Cyril Ramaphosa administration is making concerted efforts to enhance various aspects of the State, the process of recovery is anticipated to be protracted.
One of the detrimental outcomes of State capture is nepotism, resulting in the appointment of unqualified individuals, especially at municipal level.
5.2 Failure to implement programmes
The government’s inability to effectively implement its own programmes, as is evident in the National Development Plan: Vision 2030 (NDP), is akin to a corporate CEO failing to execute any part of a strategic vision, a situation that typically results in career repercussions. The Public Sector seems immune from such repercussions.
The NDP seeks to address the triple challenges of poverty, unemployment and inequality. A recent ten-year review of the progress made since the adoption of the NDP in 2012 indicates that the vision for the future expressed in the plan has not materialised over the past decade. Significant strides were made in poverty reduction between 2006 and 2011, with the poverty rate declining from 51% to 36.4%, but subsequent years have witnessed a troubling reversal of the trend, with income poverty resurging to 40% by 2016 (National Planning Commission, 2023).
South Africa is also falling short of its targets for reducing inequality targets as outlined in the NDP. The NDP’s aim is to achieve greater income equality by decreasing the Gini coefficient (measured by income) from 0.69 in 2010 to 0.60 by 2030. Inequality rose substantially between 1994 and 2006, with the Gini coefficient expanding by about 0.05 points. Although millions were lifted out of abject poverty between 2006 and 2015, more substantial benefits skewed towards higher income groups. While there was a brief reduction in inequality between 2006 and 2009, no substantial progress has been made since then (National Planning Commission, 2023).
Meeting the NDP’s unemployment reduction targets appears increasingly unlikely, mainly owing to persistently low and sluggish economic growth. The NDP originally aimed to slash unemployment from 35.4% in 2010, to 20% by 2015, 14% by 2020, and 6% by 2030. The initial goal for 2015 necessitated the creation of 2.2-million jobs between 2010 and 2015, equating to an average of 436 000 jobs a year. Achieving this would have relied on an average gross domestic product (GDP) growth rate of 4.6% a year. The rate of job creation between 2010 and 2015 was robust and created the required jobs. However, as GDP growth slowed, job creation dwindled, with only 364 000 jobs created between 2015 and 2017. The interim milestone would have required employment to reach 16.8-million, but instead, it only reached 16.2-million (National Planning Commission, 2023H).
The challenges in meeting the NDP unemployment reduction targets are closely linked to the broader economic landscape in South Africa, including the construction industry’s employment-creation role. The industry is historically known for being a major employer, especially for low-skilled and semi-skilled workers. However, the prevailing sluggish economic growth in South Africa has had a detrimental impact. It has caused delays in construction projects or a reduction in scale, limiting the number of job opportunities available within the industry. Budget constraints in public infrastructure spending have further hampered industry’s ability to serve as a substantial source of employment.
According to Statistics South Africa, there were 118 000 construction job losses between June 2017 and June 2020. The total number of persons employed at the end of June 2020 amounted to 473 000 – a 20% decrease when compared with the workforce tally at the end of June 2017, which stood at 592 000. Notably, substantial declines were observed in both the civil engineering structures and buildings segments of the industry (Statistics South Africa, 2022). In 2023, investment in renewable energy projects has begun to show signs of the situation beginning to turn around for the South African construction sector.
5.3 SoE financial constraints
The financial constraints facing State-owned enterprises (SoEs) have a detrimental impact on infrastructure development in the country. These constraints limit the government’s ability to allocate funds to critical projects and maintenance, hindering the overall effectiveness of infrastructure development initiatives.
While the recapitalisation of SoEs is a positive development, the efficacy of these institutions relies heavily on the appointment of competent board members and the establishment of clear roles and responsibilities. Failing to differentiate between the roles of board and Ministerial functions lead to confusion and overlap in decision-making.
5.4 Budget underspending
Government has repeatedly expressed its commitment to expanding infrastructure delivery. In the 2023 Budget, it has increased expenditure across various facets of public infrastructure.
A significant portion is allocated to national roads, amounting to R48-billion a year over the 2019 to 2024 medium-term expenditure framework (MTEF). Additionally, provisions for the maintenance of provincial roads amount to another R12-billion a year. It is important to note that this budgetary growth lags the inflation rate.
The budget for local and regional water infrastructure has grown rapidly, increasing from R8-billion in 2019 to a planned R17.1-billion in 2025. Spending on national water infrastructure is smaller at around R3.5-billion a year on average over the MTEF. In ontrast, spending on human settlements infrastructure is stagnant. Provinces spent R20-billion on housing in 2017, yet by 2025, the Budget plans only R20.5-billion (Sachs et al, 2023).
Despite increased allocations, SoEs and public entities consistently fall short of effectively using their budget. Although not a phenomenon unique to South Africa, as literature shows that other countries also struggle with the same issue, chronic budget underspending has far-reaching implications, contributing to project delays, stunted economic growth and diminished opportunities for the construction industry.
Between 2015/16 and 2017/18, SoEs and public entities spent less than 75% and 65% of their infrastructure budgets, respectively. The State as a whole spent less than 85% of its available infrastructure budget (Altman, 2023). The core of the underspending issue lies in complex procurement processes, notably relating to noncompliance with supply chain management (SCM) policy and regulations, alongside insufficient monitoring and evaluation of SCM policy adherence (Jantjies, 2023).
5.5 Inappropriate SCM and procurement practices
The challenges associated with SCM and procurement within the public sector have been widely documented, underscoring the urgency of addressing this issue.
One of the biggest problems of procurement is its design. Under the Public Finance Management Act (PFMA) and the Municipal Finance Management Act (MFMA), an accounting officer or accounting authority is mandated to establish a SCM unit within the office of an institution’s chief financial officer for SCM implementation. The current system places a disproportionate emphasis on financial management, neglecting the critical aspect of efficient project delivery. It has downgraded procurement into an administrative function. The PFMA and MFMA view procurement solely as part of SCM.
The current public procurement system emphasises compliance checklists. The focus should include delivering value for money, a strategy that inherently reduces the scope for corruption. This reframing of the procurement processes is important for building trust with suppliers.
The current SCM system constrains procuring institutions from effectively managing the interdependencies between contracts. The lack of control over the procurement process, including appointments, creates challenges. This misalignment with the PFMA and the MFMA further exacerbates the issue. Additionally, the system separates institutional decision-making from specialised professionals, such as built environment professionals, allowing individuals with clerical roles to manipulate the entire process. A shift towards value for money and integrating professional expertise could significantly change the current circumstances.
5.6 Tardy tender processes
Most of the public sector tenders issued are not being awarded, leaving them in a state of pending or cancelled. National Treasury’s database shows that between September 2022 and September 2023, 64 091 tenders have been published across all spheres of government and that 16 253 have been awarded (Treasury, 2023b). What compounds the issue is the prolonged period it takes for these tenders to be awarded, which poses significant challenges for resource planning.
5.7 Delivery performance deficiencies
Alongside underspending, numerous instances of cost overruns, delayed delivery and subpar value for money have been observed. Examples of overbudget projects are well documented and include the Gautrain Rapid Rail System (original budget: R6.8-billion, final cost: R25.2-billion), Transnet’s New Multi-Product Pipeline (original budget: R12.7-billion, final cost: R30.4-billion) and the Medupi and Kusile power stations, among others.
5.8 Construction mafia
The construction mafia, or so-called ‘business forums’, first reared its head in KwaZulu-Natal in 2014 and 2015, invading construction sites to demand a share of projects, or that companies employ specific people or subcontractors. By 2018 and 2019, the practice also emerged in other provinces, with these forums often touting heavy-calibre weapons as they made their demands. A similar model of extortion has since spread to other industries, most notably mining. Much of the violence has subsided in KwaZulu-Natal, but it does not mean that illegal activities have stopped. Rather, extortion has become normalised and yet another cost of doing business in South Africa (Venter, 2023).
Different interpretations of laws and regulations regarding localisation have created room for this criminal element to develop. Business forums are demanding 30% of the contract value be allocated to forum members, or directly to the forum itself. This figure appears to be derived from the National Treasury’s Preferential Procurement Policy Framework Act. The Act states that 30% of public procurement contracts should be contracted to designated groups, as provided for in the Preferential Procurement Regulations. National Treasury has condemned this practice as illegal (Venter, 2023).
While law enforcement undoubtedly plays a role in addressing the problem, it is equally imperative to acknowledge that the rise of these mafias can be attributed to the inadequacy of effectively empowering local communities. The situation has been exacerbated by the lack of robust local government institutions equipped to handle conflict resolution, compounded by the opportunistic actions of certain local political leaders.
This complex dynamic mirrors the fragmented state of politics in South Africa, where not only is the ruling party, the African National Congress, facing internal challenges, but fragmentation is also prevalent among opposition parties.
6. Recommendations
6.1 Support rebuilding State capacity
The construction industry must maintain its commitment to supporting government to enhance capacity and ensure its specialised involvement in initiatives such as certification requirements and institutional strengthening.
The construction industry must actively participate in national drives, such as the CEOs Pledge, to help improve State capacity. It is a collective decision to make a difference and to focus on actions that can bring about change. Industry leaders are encouraged to actively engage, to adopt a positive mindset and to refrain from mere criticism. For those with extensive experience, it is an opportune time to lend a hand and assist in execution, provided such support is welcomed.
Robust executive management and technical proficiency within the State and its entities will foster stability and empower them to lead and execute with confidence. A particular emphasis must be given to developing state capacity for project design and execution.
6.2 Professionalise the public service
Professionalise the public sector by investing in skilled and experienced public servants to enhance delivery outcomes. Employ professionals registered with built-environment bodies and councils. A professional public service cohort will ensure projects are managed more efficiently, transparently and comply with best practices.
Addressing the issue of unqualified employees, especially at municipal level, requires an independent forensic audit of CVs to ensure qualifications and experience are accurate. Swift action, such as immediate dismissal for falsified credentials, can remedy the problem and allow for the recruitment of qualified personnel. While skills shortages exist in many municipalities, this issue is fixable.
6.3 Elevate project leadership
Client delivery managers, possessing the requisite certifications and expertise, should spearhead infrastructure projects. This will ensure not only streamlined execution, but also establish a single point of accountability.
6.4 Transform supply chain management
Transform infrastructure supply chain management (SCM) into a strategic function, shifting its role from being merely a clerical back office or financial/administrative task. By recognising SCM as a strategic driver, it becomes a crucial element in project planning, execution and success.
6.5 Reimagine procurement
Infrastructure procurement should be decoupled from centralised purchasing systems. Instead, it should be overseen by a dedicated chief procurement officer or a high-level office specifically designated and equipped with a team of built environment professionals. This approach ensures that procurement processes are tailored to the unique demands of infrastructure projects, fostering efficiency, transparency and optimal project outcomes.
6.6 Establish effective delivery management systems
To effectively implement the National Infrastructure Plan 2050, clients must put in place procurement and delivery management systems that provide governance processes.
Establish clear delegations of authority to enable timeous decision-making and individual or organisational accountability for infrastructure delivery.
Provide for the assignment of single-point accountability to a suitably qualified and experienced built environment practitioner to provide executive level leadership in the planning, specifying, procuring and overseeing functions.
Recognise that infrastructure procurement is a central competency of those responsible for delivering infrastructure.
6.7 Prioritise value for money
Prioritise ‘value for money’ over ‘least-cost’ considerations throughout the project lifecycle, recognising that a strategic approach not only enhances the project’s immediate performance, but also ensures long-term sustainability and benefits for all stakeholders. This shift in focus allows for comprehensive planning, robust risk management and the creation of infrastructure that truly serves the country’s needs.
6.8 Delegate essential functions
Government entities incapable of efficiently spending their budgets should be mandated to delegate essential functions to other capable organs of State. This approach is particularly relevant in instances such as municipal water management, where a monopoly function exists, but the existing State entity struggles to fulfil its responsibilities.
6.9 Leverage the private sector
In a shift from outdated government infrastructure ideologies, it is suggested that private sector efficiencies should be leveraged. Although it may challenge prevailing government norms, privatising key infrastructure assets, such as the coal line from Mpumalanga to Richards Bay, KwaZulu-Natal, has the potential to accelerate much-needed improvements, potentially addressing issues within a shorter time frame. A framework should also be developed to facilitate large-scale private sector investment in the country’s electricity transmission grid.
The public-private partnership model must be streamlined for improved feasibility and user-friendliness.
6.10 Boost construction confidence
While government-led infrastructure projects play a pivotal role in stimulating the construction industry, the contribution of private sector capital formation is equally indispensable.
Rebuilding confidence in South Africa, its leadership, and its economic prospects is imperative to catalyse growth in the commercial and residential building and construction sectors.
6.11 Tackle the construction mafia
Differentiate between genuine community concerns and criminals involved in extortion for their own gain.
While law enforcement must be mandated to deal effectively with criminal elements, it is essential that local government institutions step up to the plate and take responsibility for negotiating mutually beneficial solutions.
7. Conclusion
The decline of the South African construction sector is symptomatic of broader economic stagnation, characterised by inadequate investment levels, dwindling confidence and a surge in organised crime activities.
To move forward, a multifaceted approach is needed. Policy changes must prioritise development of State capacity, professionalisation of the public service and transformation of supply chain management and procurement practices. These changes will create an environment for efficient project design and execution.
Further, addressing the challenges posed by the construction mafia demands urgent attention. Collaborative efforts between government, industry and community stakeholders, as well as law enforcement, are necessary to combat the problem.
Efforts should also be directed towards enhancing economic infrastructure, particularly railway infrastructure, and effectively addressing the prevailing energy crisis. Embracing opportunities presented by ongoing large-scale investments in renewable energy projects can be a cornerstone for industry revival. The removal of the 100 MW cap on private energy generation has resulted in a strong uptick in construction activity, as would planned investment in the country’s national electricity transmission grid.
Given that economic growth is stifled due to the lack of funding, creative and innovative funding mechanisms need to be developed to fast-track economic infrastructure development. Public Private Partnerships (PPPs) and Build Operate Transfer (BOT) need to be deployed at a far larger scale. The government should revisit its public debt to GDP policy, by being more flexible with regard to higher debt levels attached to infrastructure investment.
Given the economic urgency, special legislation similar to that during the 2010 Soccer World Cup ought to be considered to fast-track a major overhaul of the country’s economic infrastructure. Further research and economic modelling in this regard is recommended.
8. References
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Jantjies, D. 2023. Government underspending analysis 2011/12 to 2022/21: The case studies of the Departments of Health and Social Development, March 2023. [Online]. Available at: https://static.pmg.org.za/2300308March_2023_Government_underspending_analysis_2011_-_2021_the_case_studies_of_the_Departments_of_Health_and_Social_Development.pdf [accessed September 9, 2023].
Masondo, D. 2023. Remarks by Deputy Minister of Finance David Masondo at the Inclusive Society Institute Construction Summit, August 8, 2023. Cape Town.
National Planning Commission. 2023. A review of the National Development Plan 2030: Advancing implementation towards a more capable nation, August, 2023. [Online]. Available at: www.nationalplanningcommission.org.za/assets/Documents/NDP%20REVIEW.pdf [accessed September 11, 2023].
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Swanepoel, D. 2023. South Africa country brief: A socio-economic and political prognosis, September 25, 2023. Stockholm.
Venter, I. 2023. Is SA Inc fighting the construction mafia, or adapting to incorporate it?,Engineering News, June 27, 2023. [Online]. Available at: https://www.engineeringnews.co.za/article/is-sa-inc-fighting-the-construction-mafia-or-adapting-to-incorporate-it-2023-06-27#:~:text=The%20construction%20mafia%2C%20or%20so,employ%20specific%20people%20or%20subcontractors [accessed September 11, 2023].
World Bank. 2023. National Accounts Data, and OECD National Accounts data files. [Online]. Available at: https://data.worldbank.org/indicator/NV.IND.TOTL.ZS [accessed September 7, 2023].
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This report has been published by the Inclusive Society Institute
The Inclusive Society Institute (ISI) is an autonomous and independent institution that functions independently from any other entity. It is founded for the purpose of supporting and further deepening multi-party democracy. The ISI’s work is motivated by its desire to achieve non-racialism, non-sexism, social justice and cohesion, economic development and equality in South Africa, through a value system that embodies the social and national democratic principles associated with a developmental state. It recognises that a well-functioning democracy requires well-functioning political formations that are suitably equipped and capacitated. It further acknowledges that South Africa is inextricably linked to the ever transforming and interdependent global world, which necessitates international and multilateral cooperation. As such, the ISI also seeks to achieve its ideals at a global level through cooperation with like-minded parties and organs of civil society who share its basic values. In South Africa, ISI’s ideological positioning is aligned with that of the current ruling party and others in broader society with similar ideals.
Email: info@inclusivesociety.org.za
Phone: +27 (0) 21 201 1589
Web: www.inclusivesociety.org.za
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