Infrastructure Drive Or Dive?

Government has been on a massive albeit struggling infrastructure drive for years, and the recent downgrades by rating agencies will only make the situation worse as parastatals are also affected one by one.

- Andile Ntingi

After South Africa’s government debt was dramatically downgraded by global credit rating agencies Standard & Poor’s (S&P) and Fitch, newly appointed finance minister Malusi Gigaba has put on a brave face, moving fast to reassure wary investors that the country will maintain its fiscal discipline following President Jacob Zuma’s major Cabinet reshuffle at the end of March.

Gigaba’s words and deeds will determine the outcome of government’s massive infrastructure drive, which has struggled even during the fat years to produce the coveted “inclusive growth”.

In the last week of April, Gigaba was in the US to try and quell fears that the downgrades will increase borrowing costs and compromise the state’s ability to deliver infrastructure in an economy that is plagued by stagnant growth, high inflation, and rising unemployment.

The fears are not baseless. The downgrades have already dragged down the credit ratings of Eskom and Transnet, both state-owned enterprises (SOEs) which are at the forefront of government’s plans to spend R947.2bn on infrastructure development over the next three years.

Roughly 77% of the spending is earmarked to go towards upgrading economic infrastructure, predominantly in energy, transport and logistics, water and sanitation. The bulk of it (R432.8bn) will be spent by the SOEs.

Other key SOEs in the infrastructure programme, the SA National Roads Agency (Sanral) and the Passenger Rail Agency of SA (Prasa), have not yet been downgraded, but they are being closely watched by the rating agencies as they are dependent on government guarantees to raise funds from the capital markets.