R1 trillion down the drain?

Government has pledged over R1 trillion to infrastructure, but without maintenance, skills, and reform, we’re just building tomorrow’s failures today. STEPHAN KORNELIUS explains why this is of such grave importance.

As an asset management specialist, Pragma is cautiously optimistic following the recent Budget Speech delivered by our finance minister, who allocated more than R1 trillion for public infrastructure. Maintaining infrastructure spending levels – particularly for energy, water, rail, and ports – signals a positive commitment to stimulating economic growth, but only if the critical issues around asset maintenance, skills retention, and regulatory environments are properly addressed.

The fact that infrastructure and energy spending weren’t cut – while other areas like social grants saw reductions – demonstrates that the government is serious about using infrastructure as an economic catalyst.

The Budget’s immediate focus on power transmission infrastructure is welcome, but these are long-term, expensive assets with 40- to 50-year lifespans. Without proper maintenance planning, we risk repeating past mistakes if infrastructure investment is not viewed holistically across the entire asset lifecycle.

Too often, we’ve seen substantial funds allocated through mechanisms like the Municipal Infrastructure Grant, only for those assets to require complete rebuilding within five years due to poor maintenance. This pattern represents an inefficient use of already limited resources.

Government needs to make long-term maintenance capability a prerequisite for infrastructure funding. Before approving projects, the Treasury should require comprehensive maintenance plans and dedicated operational capacity to ensure infrastructure achieves its full economic lifespan. This approach would dramatically improve the return on investment for these critical assets.

The shortage of relevant technical skills has affected our infrastructure challenges. The good news is that the private sector has the technical expertise to construct and maintain these assets. In addition, there’s a substantial willingness in the private sector to partner with the government on infrastructure projects, provided appropriate control mechanisms are established. Public-private partnerships that leverage private sector capabilities while ensuring proper governance could significantly enhance infrastructure development and maintenance outcomes.

While the Budget appears investor-friendly by not increasing corporate tax rates, regulations surrounding the Budget are equally important for business confidence and investment. The regulatory environment – not tax rates alone – often determines whether businesses thrive.

The current regulatory complexity often creates unnecessary obstacles for companies eager to contribute to national development. As a fundamental principle, the government should set clear rules, apply them transparently, and then allow private industry to operate efficiently.

Funding mechanisms

The minister’s mention of new debt instruments like energy and infrastructure bonds is noteworthy. These financing vehicles could attract significant investment from sovereign funds and institutional investors, potentially easing the government’s debt burden.

Investors in such instruments will have specific expectations regarding governance and asset management. They will need assurances that we are responsible spenders with the capacity to properly maintain infrastructure assets if we are to attract this level of investment. Without such confidence, financing costs will become prohibitively expensive.

The Budget’s prioritisation of infrastructure spending is commendable, and Pragma is optimistic that if the government can create a transparent contracting environment, ensure proper maintenance planning, and reform regulations to facilitate skills development and remove obstacles, the Budget could result in significant economic benefits.

Along with others in the private sector, we are keen to partner with the government to ensure that South Africa’s infrastructure investments can finally deliver the sustained economic growth and job creation our country so desperately needs.