Government criticized for R595 billion ‘pie in the sky’ infrastructure projects

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Frustration is growing at the slow recovery of the civil engineering and construction sector in South Africa and its impact on the wider economy.

Nor is massive government infrastructure spending – in some neighborhoods – expected to ease the industry’s predicament.

This is despite the government unveiling in October the second tranche of the Symposium on Sustainable Infrastructure Development in South Africa (Sidssa) project pipeline, comprising 55 new catalytic infrastructure projects valued at around R595 billion, which are expected to create approximately 538,500 job opportunities.

Also read: Delays in awarding infrastructure projects undermine confidence in civil construction industry

Industry Insight CEO Elsie Snyman said funding is unfortunately an issue for these projects, with 75% of the required investment not available “making the potential pipeline of projects just another pie in the sky. which only sounds good on paper”.

The funding gap is in the hundreds of billions

This is a reference to the admission by the Minister of Public Works and Infrastructure Patricia de Lille, when announcing the second tranche of the Sidssa projects, that there is a funding gap of approximately 441 billion rand for the 55 new projects presented to the market.

The president of the South African Civil Engineering Institution (Saice), Vishal Krishandutt, is concerned about the slow roll-out of projects, but believes that “2022 holds potential for improved growth in the sector”.

“When we think back to the economic stimulus packages that were announced in 2020, we remember that a lot of those plans are centered around infrastructure development for job creation,” he said.

“However, as 2021 draws to a close, frustrations are growing over the sector’s slow recovery – and the ripple effects on the wider economy. The sector saw a 20.3% contraction in 2020 and is expected to have grown by only 6.2% in real terms this year,” he added.

Krishandutt said 2021 has been a pivotal year for most South Africans, with many finding themselves in a situation they never thought they would find themselves in a few years ago.

He said the rate of layoffs and quits was significantly higher and many businesses closed or opted for government bailouts to survive.

“The few infrastructure projects that entered construction during this period did not have a significant impact on the sector and the number of tenders announced by the government was very low,” Krishandutt said.

However, he feels there is reason to hope.

Krishandutt referred to the 50 Strategic Integrated Projects (SIPs) and 12 Special Projects involving an investment of R340 billion which were unveiled by the government in July 2020 as the first tranche of the Sidssa projects pipeline.

These projects were supposed to be “shovel-ready” and were due to start within three months as part of President Cyril Ramaphosa’s infrastructure investment drive to boost the economy.

Projects ‘wouldn’t get money from the taxman’

The head of infrastructure and investment at the presidency, Dr Kgosientsho Ramokgopa, said at the time that debt capital market financing accounted for R340 billion of the total investment in these projects and that they would not would make any money from the fiscus.

Krishandutt said that although the pace of progress has been slow, “it’s there”.

Other construction industry bodies, including the SA Civil Engineering Contractors Forum (Safcec) and the Master Builders South Africa (MBSA), have also lamented the slow rollout and implementation of construction projects. ‘infrastructure.

Some progress

Krishandutt said about 33% of these projects are under construction and some have already been completed, while another 20% are in various stages of preparation and feasibility.

He said the announcement of more tenders in the third quarter of 2021 is “another positive news”.

“While the net effect of these tenders will only be felt in six to 12 months, companies should start to prepare for the work and be ready to show that they have the skills and experience necessary to winning contracts,” he noted.

“The last two years have been difficult, to say the least. However, I believe we have shown resilience. With a renewed emphasis on training and investment, 2022 offers potential for improved industry growth,” added Krishandutt.

However, Snyman is less optimistic, saying government targets linked to the National Development Plan (NDP) are “still lamentably missed, gross fixed capital formation (investment) to GDP is 14% against a target of 30 %”.

Snyman added that according to Sidssa, 54% of potential projects are either in the pre-feasibility or feasibility phase, with less than 10% under construction.

Delays undermine trust

Delays in awarding infrastructure projects are believed to be responsible for declining confidence in South Africa’s civil construction industry in the fourth quarter of this year, with confidence levels deteriorating despite most indicators under underlyings, such as activity and profitability, which improved during the quarter.

Also read: Government’s R595 billion infrastructure plan needs R441 billion for ‘new’ projects

The FNB/Bureau for Economic Research (BER) Civil Confidence Index, released earlier this month, fell two index points on a 100-point scale to 15 in the fourth quarter.

The current level of the index, which has hovered around the 20-point mark since mid-2017, means that 85% of civil construction respondents to the survey are dissatisfied with the current economic situation.

  • This article originally appeared on Moneyweb and has been republished with permission.
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