Inaugural Gauteng Infrastructure Investment Conference Keynote Address by Minister in the Presidency for Planning, Monitoring and Evaluation, Mr Jeff T Radebe, MP 16 July 2015 Programme Director, Mr Victor Kgomoeswana; Honourable Premier, Mr David Makhura; Members of the Gauteng Executive Council; Executive Mayor of the City of Johannesburg, Councillor Parks Tau; Business Leaders; Distinguished Guests; Ladies and Gentlemen; Good morning. I wish to express my sincere appreciation to the Gauteng Provincial Government for inviting me to this Inaugural Gauteng Infrastructure Investment Conference. It is indeed a great pleasure for me to be part of this important gathering of the key stakeholders of our country. I am reminded of the words of William Shakespeare s work in the third part of King Henry the Sixth where King Henry said: Let me embrace thee, sour adversity, for wise men say it is the wisest course. Indeed, adversity when embraced, can present an opportunity for uniting forces towards achieving much greater things. I do not need to remind anyone that we are going through a challenging period: our economy is not growing fast enough and high levels of inequality and unemployment are threatening to undo our postapartheid achievements. Malcolm X said of adversity: There is no better than adversity. Every defeat, every heartbreak, every loss, contains its own seed, its own lesson on how to improve your performance the next time. I consider this gathering today to be a moment where we will reflect as a country and as a people on how best we can improve our performance, and what action we need to take. 1
It is befitting that Gauteng should host such an event given the important role it plays in the national economy. Gauteng remains South Africa s economic heartland. Gauteng accounts for 34% of the national Gross Domestic Product (GDP) and is home to roughly 24% of the country s population. Many more of our people come to Gauteng to seek opportunities for improving their lives and creating a better future for their families. Indeed, Gauteng does provide opportunities for people of this country and the African continent at large as the figures I will share with you indicate. The GDP for Gauteng grew at an average of 3.6% a year from 1995 to 2012, compared with 3.1% for the rest of the country and continues to grow at a rate that is higher than the national average. The province accounts for the largest share in total manufacturing production, particularly in heavy industries such as metals and other capital goods. Gauteng has also become the main centre for the auto industry. Employment grew faster in Gauteng than the average growth for the whole country at 2.1% for the period 2009 2014 compared with 1.8% for the rest of the country. In March 2015, Gauteng was home to roughly 23% of all employed persons in the country. The ability of the province to absorb people into the labour market remains higher at 52% compared to the national average of 43%. Gauteng s robust economic growth has led to a higher level of in-migration from the rest of the country and the continent. The province s population grew by 65% between 2001 and 2011 - from just over 9 million to more than 12 million people. This increased the province s share of the total population from 19% in 1996 to 24% in 2011. This level of dominance brings with it a challenge to continuously grow and find better ways of meeting the expectations of the population. For the rest of 2
the country to achieve its 2030 goals, Gauteng has to perform better than it does at present. We must search for every bit of innovation, and make all necessary investments to enable the province to increase its productivity and produce more in every human endeavour. Gauteng has the potential not only to maintain its position as the economic engine of South Africa but has the ability to expand its economic and social contribution beyond our borders. This requires constant and targeted investment by both public and private sectors, especially in physical infrastructure. The National Development Plan highlights the importance of infrastructure investment in meeting the social and economic objectives of the country. The NDP advises that: South Africa needs to invest in a strong network of economic infrastructure designed to support the country s medium and long-term economic and social objectives. This economic infrastructure is a precondition for providing basic services such as electricity, water, sanitation, telecommunications and public transport, and it needs to be robust and extensive enough to meet industrial, commercial and households needs. Government has taken the advice of the NDP to heart and put in place an ambitious infrastructure plan. Since 2009, we have been allocating more than R800 billion in the rolling Medium-Term Expenditure Framework (MTEF) towards infrastructure. By the end of 2014 government had spent R1 trillion in developing the much-needed infrastructure. Government understands that without sufficient and well-maintained infrastructure our development ambitions will not be realised. 3
I will spend the next few minutes outlining the investment plans of our government, highlight some of the projects which are already underway, as well as provide information about the progress we are making. Transport infrastructure In the transport sector, the NDP makes a number of important recommendations. These include: 1 Increase investment in public transport and resolve existing publictransport policy issues; 2 Devolve transport management to local government; 3 Provide incentives for public-transport use; 4 Improve road infrastructure; 5 Renew the commuter train fleet; 6 Expand and improve the Durban-Gauteng corridor; 7 Expand and improve the coal transport corridors to link the Waterberg coalfields in Limpopo to domestic power generating plants and to export facilities in Richard s Bay. In relation to these recommendations, the country has made significant progress. After decades of under-investment in maintenance and expansion, the country is in the process of revitalising its transport networks to become the transport hub for Southern Africa. Government is spending in the region of R51 billion on new rail rolling stock to renew the passenger fleet as well as R4 billion on new hybrid locomotives. To date, PRASA has taken delivery of thirteen (13) of the 70 new locomotives. Transnet Freight Rail is spending a further R50 billion to procure 1064 locomotives, of which 599 will be electric and 465 diesel for its General Freight Business unit by February 2019. Tenders were awarded to different consortia 4
led by General Electric (GE), China North Rail, China South Rail (CSR) and Bombardier Transportation. The PRASA and Transnet initiatives place South Africa in the position of having the largest wholesale rail renewal and general overhaul programme in Africa. At the moment South Africa is involved in some of the most challenging rail engineering projects, which firmly positions South Africa as the manufacturing hub of rolling stock on the African continent. Transnet Freight Rail will also invest approximately R45 billion on its coal export line which links Mpumalanga coalfields to the Richards Bay Coal Terminal (RBCT) to expand the capacity of the terminal to 97.5 million tons by 2021. Transnet Freight Rail and Swaziland Railways are collaborating on the proposed Swazi Link project, a 146km railway line which will enable Transnet Freight Rail to divert the transportation of general freight from the coal export rail line through Swaziland. To improve our road infrastructure, government has established a Provincial Roads Maintenance Grant to upgrade the portions of the provincial road networks that are deteriorating and in a very poor condition. More than R30 billion will be spent in the Medium Term Expenditure Framework period to 2017/18 for maintenance and rehabilitation of provincial roads. Transnet Freight Rail is doing a feasibility study for the development of a 560km Waterberg heavy-haul line to link the Waterberg coalfield in Limpopo to the existing export coal rail line. This study is due for completion in August. Regarding public transport, a number of cities in South Africa have rolled out bus rapid transit (BRT) or integrated rapid public transport network (IRPTN) systems. These include the Rea Vaya in Johannesburg, MyCiti in Cape Town, A Re Yeng in Tshwane and Yarona in Rustenburg. Infrastructure construction 5
to introduce such systems in other cities has commenced in Polokwane, Ekurhuleni, ethekwini, Mbombela, Msunduzi, George and Rustenburg. When these projects are complete public transport in our cities will never be the same again. Water Infrastructure In the water sector the NDP makes clear recommendations of what needs to be done. These are: 1 Implement the Lesotho Highlands Project Phase 2, to supply the Vaal system; 2 Current KwaZulu-Natal Midlands projects (ethekwini and Msunduzi municipalities and surrounds), need to be completed and future major augmentations decided on; 3 Undertake the Western Cape water re-use and groundwater projects, which are to be completed by 2017; 4 Expand the regional water infrastructure investments and bulk-water supply programmes, with clear implementation targets; 5 The management of water services must be strengthened and regional water and waste-water utilities established to support municipalities. Significant progress has been made in implementing these recommendations. In the Western Cape, the raising of the Clanwilliam Dam wall, at a projected cost of R2.4 billion, has already commenced and is due for completion in 2018. In KwaZulu-Natal, the Hazelmere Dam wall will be raised at a cost of R528 million for the growing demand in the ethekwini and Ilembe District Municipalities. The Groot Letaba River Water Development Project in Limpopo Province is in the planning phase. It consists of the construction of a dam at Nwamitwa, and 6
the regional bulk distribution of water for domestic use for approximately 425 000 affected people in the Greater Tzaneen Local Municipality. The Luvuvhu River Government Water Scheme (Nandoni Bulk Water Supply) is being commissioned in stages to supply proximately 800 000 people in 380 communities in the Thohoyandou and Malamulele areas of Limpopo. The Lesotho Highlands Water Project Phase II Water Transfer has started in earnest. Government s priority is to ensure that the development of this project is in the best interest of the peoples of the Kingdom of Lesotho and South Africa. Energy Infrastructure The National Development recommends investment in energy generation to add 10 000 MW electricity capacity against the 2013 baseline of 44 000 MW. While energy remains one of the most significant constraints to economic growth and the attainment of our development objectives, some successes have been achieved. In the four bidding windows for renewable energy generation by independent power producers, 92 projects have been awarded which will generate a total of 6 327 MW. Of these, 37 projects are already operational and are delivering 1 827 MW to the grid. Through this programme a total of R193 billion of private sector investment has been unlocked. Taking advantage of the success of this programme, government is planning to expand it by issuing another Request for Proposals for an expedited procurement process for a further 1 800 MW from all technologies. It is expected that Bidding Window 5 will commence in the second half of 2016. Other energy projects that are at different stages of development include a cogeneration programme, a gas to power programme, a coal base load 7
programme and cross-border hydro power. All of these programmes will require significant private sector investment in order to be realised. Ladies and Gentlemen These are only some of the projects which form part of our ambitious infrastructure plan aimed at getting this country working and meeting the expectations of its people. We have made some progress but working alone, the pace will simply not be quick enough to turn the situation around and lift this economy to a higher level of growth and development. There is an urgent need to find win-win solutions for planning, funding and delivering our infrastructure programme. Financing for Infrastructure With regard to the financing for infrastructure, the NDP makes the following recommendations: 1 Targeted public sector investment must increase to 10% of GDP by 2030. Overall aggregate savings need to rise to enable us to fund higher rates of infrastructure investment without over-reliance on foreign investors. 2 Since public spending is the main source of financing infrastructure, the state needs to play a transformative and developmental role through State-Owned Enterprises, which are central to providing economic and social infrastructure. 3 Government and the private sector need to work together to invest in infrastructure by establishing public-private partnerships. 4 Prices will have to rise to cost-reflective levels to enable SOEs to service their debt and fund effective operations. 8
5 Better coordination of investment by businesses and provincial and local government into key infrastructure projects is required. 6 We need to employ effective procurement processes that initiate timely and internationally-competitive bidding for new capacity and negotiate robust contracts. From the foregone outline of our infrastructure investment plans, it is clear that sizeable investments are required to address backlogs, extend infrastructure to previously un-serviced areas and create the foundation for economic growth. However, there are a number of factors which are constraining government capacity to invest in infrastructure. Some of these include: 1 On-budget financing that is limited by the need to maintain fiscal sustainability; 2 Weak balance sheets of State-Owned Enterprises that limit their capacity to raise financing; 3 Popular resistance to rising administered prices on top on the existing tax burden; and 4 A public sector that is struggling to complete projects which have already been budgeted for. To optimise the use of the limited finances of the public sector, the projects that are aligned with the social and economic context in the country and which will generate the most socio-economic value for the country need to be prioritised. Importantly, in order for projects to be developed and implemented successfully, sufficient institutional capacity needs to be in place. Given the constraints to financing infrastructure through on-budget spending, we need to expand off-budget financing and deploy it in a wide range of projects. The success of our Renewable Energy Independent Power Producers programme provides many important lessons. In order for off- 9
budget financing to be a viable alternative, we need to get the mix right in terms of paying for infrastructure once developed between tax-payer contributions and the user-pay system. This is important because many infrastructure projects have both a "social" and "commercial" component and therefore require a hybrid financing as well as repayment approach. Therefore, the optimal financing structure needs to be tailored on a case by case basis to fit the specific nature of the infrastructure project. There is a variety of approaches that can and are being used by the public sector for financing infrastructure projects off-budget, such as Public Private Partnerships (PPPs) and through state owned entities (SOEs). Private sector players, particularly institutional investors, are already contributing substantial debt-financing toward government's infrastructure investment programme. However, regulatory uncertainty arising from the tolling disputes and the decision to review the Electricity Pricing Policy is making investors wary of lending to SOEs and could also lead to increasing the cost of financing. As leaders we have a duty to explain to our people why the increase in the cost of service they receive is necessary and make them understand the consequences of not meeting our obligations to those who help us fund our infrastructure. Equally, we have a responsibility to ensure that the poor among us are cushioned from the negative effects of the rising costs of services they consume. Conclusion As a country, we have the resources and capacity to implement our programmes. We have deep capital markets, estimated to be three times the size of our GDP. We have a very sophisticated financial sector and big construction firms with excess capacity. We need to find more effective ways of working together between the private and the public sector to address our 10
challenges. Government is committed to removing all obstacles to working together and we are sincere when we say we need the private sector to work with us. We only have one country South Africa and we have no choice but to make it work. Thank you. 11