Opinion – Every Budget heralds major infrastructure spend. Where is the infrastructure?

    • At the Sustainable Infrastructure Development Symposium on 23 June 2020, the president unveiled his vision for infrastructure-led economic revival.
    • But, says the writer, we have heard similar rhetoric at every SONA and Budget – and yet little has happened on the ground. 
    • The construction sector is suffering, as are the cement, engineering and steel industries. 
    • The writer proposes three main courses of action to remedy the problem.

    At the inaugural Sustainable Infrastructure Development Symposium held on 23 June 2020, President Cyril Ramaphosa unveiled his bold vision of an infrastructure-led economic revival of the moribund South African economy.

    He announced that 88 investment-ready projects had already been identified by the Presidency’s infrastructure and investment head Dr Kgosientsho Ramokgopa and Public Works and Infrastructure Minister Patricia de Lille.

    So far, so good but, with all respect, we have heard similar rhetoric before. At least since 2012, when the National Infrastructure Plan was adopted, each State of the Nation address and budget speech has heralded massive infrastructure spending. Not much has happened on the ground. 

    As a result, the long-awaited economic resurgence has been deferred time and again. A graphic illustration of this is the declining number of cranes visible on the skyline of Sandton, our business hub. Private sector development is directly proportional to the infrastructure government provides, and the construction industry bridges both sectors.

    Further, this lack of investment in both public and private infrastructure has had a devastating effect on what was once one of our national jewels – we remain the only country on the continent with the capability to build our own infrastructure, something we triumphantly demonstrated at the 2010 Soccer World Cup. By contrast, our peer, Brazil, struggled to do the same.

    Since then, however, many of our largest construction firms have gone out of business or into business rescue, victims of the industry’s paper-thin margins and lack of work.

    The same scenario has played out across the allied cement, engineering and steel industries locally.

    In parallel, the erosion of the tax base and the squandering of tax revenues due to corruption and mismanagement has reduced government’s ability to fund infrastructure development. Any fiscal surplus there was has now been consumed by the programmes to support those affected by Covid-19.

    We must recognise these red flags and take the necessary action. Specifically, there are three issues that need to be settled for the president’s infrastructure-led economic recovery strategy to work.

    Implementation must be swift. As noted, the construction sector has been haemorrhaging for many years, and many of the Tier 1 companies are either gone or in trouble.

    They were always the lynchpins of big public sector projects because they had the financial heft and project management skills to manage them. However, all is not yet lost because enough of the rest of the construction value chain is intact to bridge the gap. Many of the people within the defunct Tier 1 companies migrated into the big Tier 2 companies, which often carried out project implementation.

    These Tier 2 companies are thus able to take on the project management role previously fulfilled by the likes of Basil Read, Murray & Roberts, Liviero, NMC and Group 5.

    But we are seeing the beginnings of an exodus of skills, many of them to New Zealand and Australia. Unless the big projects come online soon, the exodus will grow and we will lose the skills we need to manage our own megaprojects and, like the rest of Africa, we will have to turn to foreign principal construction companies, presumably from China, with everything that entails.

    The myriad subcontractors further down the value chain have also been through an exceptionally tough time but they are still there. Similarly, though, if the projects do not come through soon, those businesses will close or move into other sectors.

    Conditions satisfactory to the private sector must be put in place. If the state has no capital to invest in these projects, corporate South Africa does. Quite frankly, nothing is possible without the private sector, and the president has recognised this.

    Speaking after the Symposium, Jacko Maree, now South Africa’s investment envoy, and Business Unity South Africa’s Martin Kingston both emphasised that while the private sector is ready to invest in these types of projects, and is willing to work alongside the state, it needs to be convinced that there is going to be a reliable stream of work, and that the state fast-tracks a stable and satisfactory policy regime in place.

    Without this, the construction and allied engineering, cement and steel industries will simply not invest the money needed to effect the necessary retooling and reskilling needed to restore our construction capacity.

    We still have huge construction capacity in this country, and we must not let it go the way of our manufacturing sector. If we can’t build the infrastructure ourselves, then its contribution to our economic recovery will be minimised.

    Inclusivity must be rethought. Quite rightly, the president has stressed that this economic revival presents a real opportunity to build a more inclusive economy. We all want this, and indeed it is vital to our future as a country.

    However, the devil is in the detail. Over the past few years, we have seen many of the public infrastructure projects that have been undertaken hijacked by what we call the “construction mafia“. They illegitimately use the Preferential Procurement Act, which stipulates that 30% of any public sector infrastructure project must go to emerging businesses, to hold the project to ransom, and this practice has spread into the private sector as well.

    Unfortunately, the state and its agencies have shown little interest in putting a stop to this – and have even in some cases been guilty of collusion with the practice – leading to projects running late or even being abandoned.

    The president recognised this problem in his speech, saying this kind of activity was “radical economic robbery” rather than “radical economic transformation”, and argued that those who break the law have to experience the consequences of so doing. Again, actions speak louder than words, and until now action has been signally lacking.

    My own view is that the principal contractors on any project should be left to manage the empowerment side of things, as they did successfully in the past, with oversight by the state.

    The president has set a target of R1.5 trillion of infrastructure investment over the next decade. This is achievable, and indeed must be achieved, if we are survive economically, but there are significant obstacles. They can and must be overcome, and swiftly, and this will, I suspect, be a make-or-break initiative for his administration – and our economic future.

    Article Source: www.news24.com

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