Wednesday, October 1, 2014

You are here

The Risks in South Africa's $112 Billion for Infrastructure Plans

A new economic plan will open up opportunities for investors, particularly in manufacturing, construction and energy, but delays and frustrations are also likely.
Share |
Is there light at the end of the tunnel? A Gautrain tunnel under construction in South Africa. Photograph by Andrew Ashton.

A new economic plan, named the National Development Plan (NDP), is likely to be adopted in 2013 promoting low taxation for businesses and imposing less stringent employment requirements. This a measure that the ruling African National Congress (ANC) is pursuing ahead of the 2014 national elections, seeking to reverse the economic slide of 2012, which was marked by widespread industrial unrest, dwindling foreign investment and a downgrade by three credit ratings agencies. The NDP will encourage partnerships between the government and private sector, creating opportunities in petrochemical industries, metal-working and refining, as well as development of power stations (gas, coal and nuclear).

Construction companies are especially likely to benefit from government plans to invest $112 billion from 2013 in the expansion of infrastructure as part of the NDP. Some 18 strategic projects will be launched to expand transport, power and water, medical and educational infrastructure in some of the country's least developed areas.

Energy companies will also benefit, following the lifting of a moratorium on licences for shale gas development. Meanwhile, there will be significant opportunities, especially for Chinese state-owned enterprises that have recently made high-profile visits to South Africa, to acquire divested assets in the platinum and gold mining sector as large mining houses withdraw from South Africa.

However, the NDP encourages a strong partnership with state investment vehicles, such as the National Empowerment Fund or the Development Bank of Southern Africa, as well as state-owned enterprises Eskom (power), Transnet (logistics) and Telkom (telecommunications). State participation is likely to expose investors to demands for bribes during tendering processes and preferential treatment for favoured bidders. In the construction sector, for example, South African and Chinese firms are likely to be favoured. As the government plans to dismiss or rotate a number of heads of state enterprises, delays and frustration of projects is also likely.

The pledged $112 billion for infrastructure expansion is unlikely to be made available in its entirety due to probable mismanagement and deteriorating government finances. As foreign investment dwindles and tax revenues fall, the trade deficit is likely to expand while the current account deficit is projected to exceed 6% in 2013. Sourcing financing will also become more expensive following the downgrade. The risk of delayed payment will be highest for construction companies contracted by provincial authorities and state-owned enterprises rather than the central government. Yet the risk of non-payment is moderate as the government is likely to bail out troubled projects.

Think Africa Press welcomes inquiries regarding the republication of its articles. If you would like to republish this or any other article for re-print, syndication or educational purposes, please contact: editor@thinkafricapress.com

For further reading around the subject see:

 

Share |