Local governments, state-owned enterprises and private companies have begun pouring money into developments that will spur growth and create much-needed jobs.
Cranes and scaffolding may soon appear on city skylines as South Africa recovers from 15 years of drought and is in the midst of infrastructure projects.
Multiple players in the construction industry’s long value chain, from cement producers to real estate developers, are reporting renewed interest and preparations for new infrastructure projects, driven by optimism about the country’s economy and the Government of National Unity (GNU).
Take PPC, South Africa’s largest cement manufacturer, for example. On January 16, the company announced plans to invest R3 billion to build a new cement manufacturing plant on an existing site in the Western Cape.
The plant is expected to begin production in 2026, supplying customers in the province and the Eastern and Northern Cape provinces. Once operational, it will produce 1.5 million tonnes of cement a year, enough to build around 25 stadiums the size of Johannesburg’s FNB Stadium.
This is a major undertaking by PPC as South Africa faces a cement glut, local businesses weakened by cheap imports from China, Pakistan and Vietnam, and an economy that remains weak.
But PPC CEO Matthias Caldarelli believes there is enough demand for cement and a market to absorb it. “All the models and scenarios we have run show that the construction market and economy will grow in the coming years. We believe we are at the bottom of a negative cycle for construction and infrastructure in South Africa,” he said.
Mr Caldarelli is betting on President Cyril Ramaphosa’s multibillion-rand strategy to repair crumbling infrastructure, which could spark a construction boom, especially in many failing municipalities.
GNU plan to revive the construction industry
Mr Ramaphosa’s strategy seeks infrastructure projects that support economic growth and improve quality of life, such as fixing potholes, improving water and housing in communities, building bridges in rural areas and installing towers to provide high-speed internet access to public schools and hospitals.
Mega infrastructure projects are central to this strategy, including repairing failing rail infrastructure that is hampering exports of coal, iron ore and other minerals. Plans are also being made to expand high-voltage transmission lines in the Western Cape, Eastern Cape and Northern Cape to connect renewable energy produced by private operators to the national grid.
read more: Repairing local governments and their crumbling infrastructure is the centerpiece of Ramaphosa’s economic growth plan
Prime Minister Ramaphosa has repeatedly promised to improve infrastructure annually since 2018, but no progress has been made. The government is struggling to get infrastructure projects off the ground due to a lack of capacity. Local governments and states don’t have enough engineers or project managers to initiate and manage projects.
This leaves South Africa with little or no new infrastructure projects to fund or introduce to private investors who want to fund these projects through government partnerships.
Mr Caldarelli believes the government will “walk the talk” this time, but leaves room for disappointment. “We are watching the new infrastructure plans highlighted by GNU come to fruition. We are cautiously optimistic,” he said.
His cautious stance is backed by Andries van Heerden, CEO of Afrimat, which supplies construction materials such as cement, bricks and ready-mixed concrete. Van Heerden said the building materials industry “continues to see demand for our aggregates, with modest increases in production from road, rail and dam projects.”
But Van Heerden said that while “certainly small pockets of demand are opening up,” he has yet to see a significant increase in the infrastructure development and maintenance side of the economy. He believes that if South Africa wants to deliver mega-infrastructure projects like those in the run-up to the 2010 World Cup, which saw a surge in public infrastructure spending, it needs to improve port and rail logistics and generally achieve higher economic growth rates to spur much-needed job creation.
Project pipeline
Public sector-led projects are already coming to market that could reduce unemployment and stimulate the economy at a more regional and local level.
The City of Cape Town recently announced plans to invest R43 billion in infrastructure development, with a focus on water and sanitation projects, which is expected to create 135,000 jobs.
The cities of Tshwane and Johannesburg, as well as some municipalities in Limpopo province, are undertaking housing, school and water infrastructure projects.
State owned enterprises (SOEs) such as Eskom, Transnet and South African Airports Limited are also joining the effort, investing in the expansion of power, transport and water infrastructure and manufacturing facilities. Local governments, state-owned enterprises and private companies invested R793.7 billion in new megaprojects in South Africa in the first half of 2024, according to Nedbank statistics. This is higher than the R193.2 billion and R260.4 billion recorded in 2023 and 2022 respectively.
The resurgence of public sector-led infrastructure projects is welcome news, given that the government has consistently ignored spending on infrastructure projects over the past 15 years to fund free higher education and offset low tax revenues.
Underscoring this is that South Africa’s gross fixed capital formation (a measure of investment, including new infrastructure projects) should reach 30% of GDP as envisaged in the National Development Plan, but remains at around 16%.
GNU has adopted a new approach to persuading the private sector to participate in state-led infrastructure projects. The Ministry of Finance is revising regulations to attract private investment in public infrastructure projects by launching a World Bank-backed credit guarantee scheme to provide incentives for public infrastructure projects and reduce the risks of such projects.
Private investors typically use debt to finance large infrastructure projects and seek to share debt risk with governments to incentivize participation.
Previously, under the Renewable Energy Independent Power Producer Procurement Program, the government guaranteed up to 100% of the debt owed by the private sector for these projects. This put public finances at significant risk as taxpayers would be responsible for repayments if private sector players defaulted.
read more: GNU persuades private sector to promote infrastructure projects to create jobs
The new credit guarantee instrument aims to transfer risk from government finances to the World Bank’s Multilateral Investment Guarantee Agency, which insures investments in developing countries against political risks. Treasury Secretary Duncan Peters said infrastructure projects would focus on electricity transmission first, followed by water and transport projects. The credit guarantee instrument is expected to be operational by the end of 2025.
Economic conditions are currently favorable for private sector players to finance infrastructure investments. Independent property analyst Kaylen Ndlovu said the recent fall in interest rates would give property developers more scope to secure debt at cheaper rates. If positive sentiment towards GNU continues and economic growth prospects are favorable, there will also be an enabling environment for investment. DM
This article first appeared in Daily Maverick 168, a weekly newspaper available nationwide for R35.
