President Thabo Mbeki set a formidable challenge for the South African economy last month when he proposed the creation of an economic blueprint to help achieve a growth rate of 6%. One method of stimulating the economy to make this goal seem less insurmountable is to boost public-sector fixed investment to improve transport.

Despite efforts to improve the efficiency of SA’s ports and rail utilities, the country’s transport infrastructure has been incapable of supporting higher export volumes to take advantage of the commodities boom, led by China’s surging industrial output.

China consumes 27% of the world’s steel, 30% of its iron ore and 32% of its coal.

Reg Rumney of economic think-tank BusinessMap says spending on infrastructure “clearly isn’t sufficient to take advantage of the current commodities boom, as the commodity companies aren’t able to ship goods out fast enough”.

SA achieved an overall ranking of 46th out of 60 countries in Swiss business school IMD’s 2004 world competitiveness ranking; its run-down transport infrastructure ranked 58th.

A report by the Council for Scientific and Industrial Research in February this year concluded that logistics was one of SA’s “core structural problems”, representing a cost to the economy of R180bn a year, or 14,7% of gross domestic product (GDP).

This compares with 8,5% in the US.

Holdups at ports last year meant SA was unable to meet demand for coal and iron-ore exports to global markets.

Efforts were made to reduce congestion at Durban’s port by speeding up turnaround times to below 16 hours from a 2003 average of 60 hours for container traffic. A R364m upgrade at the port which handles 65% of SA’s container cargo has been completed.

At Richards Bay, coal shipments are expected to jump 44%, from 80,3-million tons a year in 2003 to 116-million tons in 2020, and volumes at Cape Town are expected to grow 40% by 2020.

SA’s ports handle 39% of the country’s export and import traffic, which amounted to 176-million tons of cargo last year 79,% of it destined for export, according to South African Port Operations.

Upgrades at the Richards Bay dry bulk, coal and bulk metals terminals have been completed to increase handling capacity.

The Nedbank Capital Expenditure Project listing for the first half of 2005, which measures projects valued at R20m or more, says that 30 new projects worth R28bn were announced before the end of June. If this rate is annualised, projects worth R56bn are expected for this year.

This compares poorly with the R173,8bn spent last year on projects. However, those figures were boosted by government’s announcement of a major drive to upgrade infrastructure, including R37bn spent by Transnet.

The Reserve Bank’s June Quarterly Bulletin shows that the share of investment to GDP rose to 16,8%, from 14,7% three years ago. Real growth in fixed investment accelerated to 10,1% in the first quarter, from 9,1% at the end of last year.

However, at a World Bank conference on infrastructure in sub-Saharan Africa, held in Cape Town recently, the bank said SA needed to spend at least R25bn-R35bn a year on transport-related infrastructure, compared with current expenditure of R18bn.

In a presentation to Parliament’s portfolio committee on public enterprises in June, a senior adviser to the World Bank’s poverty reduction network, Ionnis Kessides, said advances in infrastructure development were of strategic economic importance and had a significant effect on the amount of foreign direct investment SA could attract.

Alternative financing instruments for infrastructure development in countries where public funds are limited include public-private partnerships and the concessioning of assets to the private sector for a predetermined length of time.

The World Bank says African governments have decreased their contribution to infrastructure 60% since the 1980s — from an average of 4,2% of GDP to 1,6% GDP in the 1990s.

“However,” Rumney says, “there seems to be some hesitance on behalf of government to involve the private sector.

“There definitely is room for their involvement as we could tap into their finances as well as their and expertise.”

Roger Baxter, chief economist for the Chamber of Mines, says he believes the private sector can offer a variety of skills but the effectiveness of such an intervention will depend on how these are used. “A restrictive legislative and regulatory framework may put limits on private sector’s role.”

Finance Minister Trevor Manuel told the World Bank conference that he expected to see a “dramatic” rise in infrastructure projects, financed and implemented by public-private partnerships.

In his address to the African rail conference in June, Spoornet CEO Siyabonga Gama said the company would consider a separation of infrastructure and operation functions, calling concessions “a useful tool to fund and manage operations”.

He is confident of government’s ability to initiate new projects without private-sector involvement.

“Concessioning is not a panacea. It is important that certain areas remain government-owned as state-owned does not necessarily mean inefficient,” Gama said.

While the performance from public-private partnerships in sub-Saharan infrastructure over the past decade has been somewhat disappointing, Manuel said the trick to implementing them successfully is to balance the interests of the public and private sectors, and to set clear ground rules and standards.

Wendy Hall – 25 August 2005