Private, public adversity thwarts growth

28th January 2022 By: Cameron Mackay - Creamer Media Senior Online Writer

The state of local public-sector infrastructure has been declining for years, while private-sector infrastructure has not kept pace with international trends. This infrastructure could be upgraded by the private sector if it were given the chance to grow; however, an “adversarial” relationship between the public and private sectors persists, states construction company M&D Construction CEO Rukesh Raghubir.

“Policies adopted by the State and the way in which they are being implemented are not aligned with the private sector, which is driven by profit, low-cost production, economies of scale and sustainability. Private capital flows are, therefore, being diverted from South Africa to other countries that have favourable economic and political landscapes that support business imperatives.”

Economic infrastructure can be classified into two categories, namely infrastructure developed and owned by the private sector, and that which is developed and owned by State organs.

He stresses that public-sector infrastructure has been neglected for many reasons, including inexperience in developing, maintaining and upgrading new and existing assets.

This neglect has been exacerbated by rampant corruption and radical ideologies regarding the purpose of State organs, argues Raghubir.

As an example, he points out that the focus of government seems to be to use State organs as vehicles for creating direct employment and job security, and an alternative economy that competes against the private sector.

“This is opposed to using these organs to develop and operate state-of-the-art infrastructure that harnesses cutting-edge technology to enable companies to adapt to market demands and compete at a global level.”

Investment into infrastructure has declined from 20.3% of gross domestic product (GDP) in 2015 to 17.9% in 2019.

He states that this is nowhere near the National Development Plan’s target of spending 30% of GDP on infrastructure. R708-billion in infrastructure investment is needed in the future to meet this target, and a third of this sum must come from the public sector, as highlighted in the Economic Reconstruction and Recovery Plan.

However, investment into infrastructure by government has been declining for many years.

“It is of serious concern that State organs have now fallen into such a state of disarray that they are compromising each other’s infrastructure, to the detriment of economic growth. A case in point is the growing number of trucks on our national roads network, owing to the poor condition of our railway infrastructure, which is better suited to transporting certain goods. This places pressure on an already strained South African National Roads Agency.

“Meanwhile, a lack of power generation capacity at State-owned power utility Eskom thwarts the profitability of railways operator Transnet’s railway and port operations.”

Raghubir also notes that many enterprising companies have adapted to circumstances by reducing their reliance on centralised infrastructure.

These companies are generating their own power and reducing demand for water through effective demand-side management. Meanwhile, the migration from rail to road as a more effective mode of transport continues unabated.

He adds that there are, however, many companies that have preferred to invest in other countries – ones that have the necessary support infrastructure in place.

Raghubir argues that ideological differences between owners and developers of the two types of interconnected infrastructure need to be resolved, which will ensure the effective development and operation of public and private sector infrastructure.

By creating a stable and supportive environment, government will help facilitate the growth of a vibrant private sector that is willing to take more risk and invest heavily in economic infrastructure, he states.

As an example, he highlights that companies want to know that government will safeguard the ownership of their property in all shapes and forms. They also require efficient regulatory processes, including procurement procedures that do not impede business.

“This does not mean that government should not focus on social change as this is a critical imperative, especially in one of the most unequal countries in the world. However, it is the State’s approach to addressing inequality that is actually fueling rising unemployment and inequality. Creating a vibrant economy by investing in infrastructure and ensuring that it is well-maintained will help the State achieve its socioeconomic goals. This includes addressing historical disparities by creating a truly inclusive economy for all South Africans.”

He also emphasises the importance of the private sector playing a larger role in government-driven infrastructure to reduce pressure on public finances, and increase projects in the public-sector investment programme.

“Even if government spends all it can on infrastructure development, the backlog in essential construction projects remains so significant that it would take billions of rands and decades to address it without the private sector. Government is currently seeking more than R400-billion from the private sector to help it fund more than 400 essential infrastructure projects.”

He concludes by noting that, by delegating the construction and management of infrastructure projects to the private sector, government will also benefit from private-sector skills, and realise cost and efficiency gains.