JOHANNESBURG – The South African engineering and construction industry is currently under severe stress. According to the 2019 Budget Review report, public sector spend on infrastructure has reduced by almost R36 billion since 2016.
The recently released Q3:2019 Labour Force Survey by Statistics SA showed that the construction industry lost 163 000 jobs over the past year.
This is significant considering that the industry also holds the key to reinvigorating the South African economy. Something urgent has to happen and soon.
It’s encouraging that Finance Minister Tito Mboweni has committed to continue investing in infrastructure in his Medium-Term Budget Policy Statement (MTBPS). We can turn around the engineering industry, and the country, by committing to a deep and well-considered programme of infrastructure-led investment.
Engineering has helped to build South Africa, in the physical sense, and it will help to rebuild the economy. The key to this enabler is to speed up the implementation of the government’s stated intent on infrastructure. It is generally accepted that South African engineers possess the skills and expertise to execute significant, large-scale projects at massive scale, the kind that will create tens of thousands of jobs and have vast multiplier benefits for the broader economy. The question is, why is it taking so long to see this infrastructure-led growth?
The recent National Treasury economic recovery plan discussion paper contains encouraging signs, with its focus on modernising network industries – transport, water, electricity and telecoms. Of these, the electricity challenge is fundamental. Most would agree that Eskom faces mostly a governance and financial-management issue, as opposed to a lack of technical capability within or outside Eskom.
Recognising this, Public Enterprises Minister Pravin Gordhan has appointed a chief restructuring officer to tackle Eskom’s debt and unbundling options. Should Eskom’s financial challenges be resolved, uncertainty should be alleviated and investor confidence reignited. As an institution that is critical to the country, Eskom’s stability is vital.
The Department of Public Enterprises announced a new roadmap for Eskom’s recovery. The Integrated Resource Plan 2030, now finalised, will provide further certainty on the energy mix for the future. We await further direction on the role that the private sector will play in the implementation.
With these plans now in place, we should focus on implementation and keep the owners of these plans accountable. This simple, but criminally overlooked approach could just as easily serve as the play book for South Africa’s own economic recovery.
The government has expressed its intent to create certainty. As it delivers on its commitments, it will be slowly creating the environment that the private sector – locally and globally – looks for.
In his MTBPS, Mboweni spoke of setting up an infrastructure fund to leverage private-sector participation. This is a fascinating opportunity. As an organisation intimately engaged in the South African engineering sector, we welcome such a prospect, and would embrace any opportunity to partner with government to make it a reality.
In the water and sanitation space, models are being considered that could be similar to IPP programmes in the energy sector. The government and the private sector have to work together if we are to deliver on our big infrastructure needs.
The transport and logistics sector faces massive passenger rail infrastructure challenges. However, there are also opportunities, especially around rail. An example is Prasa’s massive modernisation programme, worth about R172 billion.
If correctly implemented to meet the 65 percent local content requirements, this programme could transform the South African rail engineering industry. But again, our enthusiasm for planning must be met with an equivalent commitment to implementation.
In the road transport space, Sanral recently announced it would be spending in excess of R25bn on road infrastructure. The airports company has also announced significant airport upgrades in the planning stages. These are all positive signs. However, uncertainty will remain until we see tangible signs of infrastructure spending.
About 50 percent of government spend on infrastructure is done through state-owned companies. These institutions drive our sector. If their proposed programmes can be rolled out as envisaged, we can turn our industry around in two to three years.
Globally, infrastructure is used as a catalyst to reinvigorate depressed economies. After 2008, the US used infrastructure spend to kickstart its economy under the American Recovery and Reinvestment Act, successfully stimulating demand and creating thousands of jobs.
An infrastructure-driven recovery is not rocket science. It will help to create demand in the economy. Many economists advocate for demand side-driven growth, as opposed to solving supply-side constraints. The government has the budgets to drive such an economic revival, it must just ensure that it spends the budgets effectively.
We saw the potential of construction-driven growth in 2010, in the build-up to the Fifa World Cup, where an infrastructure-led boom helped South Africa to buck the worst of the global downturn. The Coega deepwater-port development and the Gautrain commuter-rail project are examples of infrastructure projects that helped to unlock economic development opportunities.
An infrastructure drive would also help South Africa to solve other national challenges. It would revive manufacturing, create real jobs and reduce poverty and inequality.
Our country sometimes suffers from a tendency to launch plans and campaign with great fanfare, then to scrap those plans and launch new ones. From the National Development Plan to the recent “reimagined economy”, there have been no shortages of initiatives and buzzwords aimed at driving growth. But it is implementation, not vision alone, that will make that growth a reality.
When it comes to implementation, there is little to match the effectiveness of a long-term, well-resourced and efficiently administered infrastructure programme to drive a country’s recovery.
South Africa has the skills. Our engineering industry is champing at the bit. There are no ideological differences when it comes to infrastructure investment. We make provision for infrastructure spend in our national budgets. Let us commit and focus on implementation.
Richard Vries is chief executive of the GIBB Group.