The Great Waste: SA’s debt-funded R1trn infrastructure programme

South African politicians wedded to the socialist “Development State” ideal are learning the hard way what their Soviet predecessors were forced to admit a quarter century ago – central economic planning is the road to disaster. The complexities and dynamics of a modern economy make it impossible for a command and control approach to work. The country’s spending on infrastructure, topping one trillion rand in five years, is unprecedented. But while it has more than doubled the national debt (to R1.7trn) requiring R110bn annual interest servicing, the growth return has been pathetic. Because for any economy, remove reliable electricity supply and nothing else really matters. – Alec Hogg 

By Mike Cohen

A shopkeeper waits for customers in his candlelit  fast food store during a load shedding electricity blackout in Cape Town April 15, 2015.  South African power utility Eskom expanded rolling blackouts for a second straight day to the "Stage Three" level on Wednesday, meaning it needs to cut 4,000 megawatts from household and industrial consumers to prevent a grid collapse.    REUTERS/Mike Hutchings       TPX IMAGES OF THE DAY
A shopkeeper waits for customers in his candlelit fast food store during a load shedding electricity blackout in Cape Town April 15, 2015.  REUTERS/Mike Hutchings TPX IMAGES OF THE DAY

(Bloomberg) — South Africans suffering through their country’s longest run of power outages ever can draw little comfort from how much the government has spent on infrastructure in the past five years: One trillion rand ($83 billion).

That’s bought improved roads, airports, ports and rail lines. What it hasn’t produced: a reliable electricity supply. Rolling power blackouts have hit on average every third day this year. The National Treasury says “low and unreliable levels of electricity” are the biggest obstacle to faster growth. Data to be released Tuesday is expected to show factory output grew 1 percent in March after two months of decline.

South Africa accounts for almost a quarter of the 257 infrastructure projects of $50 million or more being developed in Africa and half of the 10 biggest, said a study released by Deloitte LLP in March. Yet the power constraints negate the advantage of improved transport links that should be boosting company sales and exports.

“The numbers are big but the effectiveness of the infrastructure spending has been very, very poor,” Dennis Dykes, chief economist at Nedbank Group Ltd., South Africa’s fourth-largest lender, said by phone on May 4. “Thus far, we have got no return at all from a number of capital projects. We have got a major problem” with the power supply, he said.

The energy shortfall arose after the government stalled the approval of new power plants, leaving Eskom Holdings SOC Ltd., which supplies about 95 percent of the nation’s electricity, with a plethora of malfunctioning plants.

Coal Plant
Medupi and Kusile are expected to cost about 38 percent more than what was estimated in 2007.

Coal Plants

The economy could have been 10 percent larger had it not been for the power shortages, according to Dawie Roodt, chief economist at Pretoria-based advisory service Efficient Group Ltd. Twenty-one years after the end of apartheid, a lack of jobs keeps 10.9 million South Africans, or 22 percent of the population, below the poverty line of 322 rand a month. A quarter of the work force is jobless.

Two new coal-fired plants being built by Eskom, the first since the 1980s, are running four years behind schedule due to technical failures and strikes. The plants, known as Medupi and Kusile, are expected to cost about 38 percent more than what was estimated in 2007.

The government should shoulder part of the blame for the infrastructure deficiencies, said Andre Pottas, southern African head of infrastructure and capital projects at Deloitte.

“We are short of engineering skills,” he said by phone from Durban. “The procurement processes are very complex. We see a lot of stop-start on projects.”

File photo of electricity pylons in Johannesburg's Alexandra townshipEnergy Crisis

The Geneva-based World Economic Forum’s 2014-2015 Global Competitiveness Report ranks the reliability of South Africa’s electricity supply 99th out of 144 countries. The quality of transport infrastructure, by contrast, is 32nd.

The government has acknowledged its shortcomings: On April 15 Public Enterprises Minister Lynne Brown apologized to the country for the power shortages.

On April 17, the government appointed Transnet SOC Ltd. Chief Executive Officer Brian Molefe as acting CEO of Eskom and directed him to resolve the energy crisis. It’s also contracted with private companies to supply 5,243 megawatts of renewable energy to the national grid, and plans to buy 2,500 megawatts of power generated from coal and 3,126 megawatts from gas.

Shopkeeper counts change by the light of a battery-powered lamp during a load shedding electricity blackout in Cape Town
On the ground, the effect of the backlogged power situation is very real, with business owners countrywide forced to function similarly.

Rolling Blackouts

Transnet is an example of a state business that’s making progress on infrastructure investment. The logistics company is in the third year of a seven-year, 312.2-billion-rand plan to upgrade railways, ports and fuel pipelines. It’s moving record volumes of coal, manganese and freight via rail, and 60 trains now run daily between Johannesburg and the east coast city of Durban, up from 20 a decade ago.

State-owned Eskom is spending 280 billion rand on more than 8,000 projects over five years to increase its generation, distribution and transmission capacity.

Molefe aims to use the experience he gained during his four years heading Transnet to end the blackouts by year-end by sourcing another 3,000 megawatts of electricity and boosting maintenance. He expects power shortages to ease within three to four years as the utility tackles a maintenance backlog and new plants come online.

“There is steady but sure progress that is being made,” he said in an April 22 interview in Cape Town.

Green Energy
Alternatives to being on the grid are costly and not an option for the majority of small shop owners and households.

Direct Jobs

The government and state companies plan to spend a further 813 billion rand on infrastructure over the three years through March 2018, with 62 percent of the funds allocated to energy and transport projects.

A committee headed by President Jacob Zuma was set up in 2012 to coordinate 18 integrated developments and address bottlenecks. Projects overseen by the panel, which range from new power plants, dams and pipelines to improving broadband Internet access, sustain more than 220,000 direct jobs and are already having a positive impact on the economy, the presidency said in an April 30 e-mail.

The Treasury forecasts that growth will be limited to 2 percent this year because of the power shortages, up from 1.5 percent in 2014 when strikes stifled mine and factory output. The government is targeting 5 percent growth by 2019 as it seeks to reduce the unemployment rate to 14 percent.

“We will be in much better position by the time we get to 2020,” Nedbank’s Dykes said. “There is absolutely no intrinsic reason why South Africa can’t grow much faster.”

The interventions to address the electricity shortfall have been too little, too late, said Gareth Ackerman, chairman of Cape Town-based retailer Pick n Pay Stores Ltd., which has installed backup generators to run its fridges and tills, a solution unaffordable for some smaller companies.

“This is damaging small business and damaging the economy as a whole,” he said. “We need to find ways of getting that fixed quickly and the government needs to find solutions.”

GoHighLevel
gohighlevel gohighlevel login gohighlevel pricing gohighlevel crm gohighlevel api gohighlevel support gohighlevel review gohighlevel logo what is gohighlevel gohighlevel affiliate gohighlevel integrations gohighlevel features gohighlevel app gohighlevel reviews gohighlevel training gohighlevel snapshots gohighlevel zapier app gohighlevel gohighlevel alternatives gohighlevel pricegohighlevel pricing guidegohighlevel api gohighlevel officialgohighlevel plansgohighlevel Funnelsgohighlevel Free Trialgohighlevel SAASgohighlevel Websitesgohighlevel Experts