State’s R1.3 trillion Infrastructure Plans Unharmed by Budget Dispute

Government allocations for infrastructure spending remain intact despite the conflicts within the government of national unity (GNU) regarding proposed tax hikes, which resulted in the recent delay of the 2025 Budget.

An extra R46.7 billion has been earmarked for vital infrastructure initiatives, bringing the projected government spending by state enterprises, public entities, and national, provincial, and local authorities on various infrastructure projects over the next three years to R1.03 trillion. This increase underscores the government’s commitment to infrastructure investment as a means to stimulate economic growth and job opportunities.

Read: R1.3tn for infrastructure: Can SA deliver?

Finance Minister Enoch Godongwana emphasized on Wednesday that infrastructure is a fundamental component of the government’s strategy for growth.

“It is essential for economic development, a crucial source of employment, and a significant pathway to enhance service delivery,” he stated.

“This budget embodies that understanding,” he added.

Godongwana noted that capital payments are the fastest expanding area of expenditure by economic classification, and spending on public infrastructure over the next three years is expected to exceed R1 trillion.

The focus of this spending will be on three key sectors:

• R402 billion for transport and logistics;
• R219.2 billion for energy infrastructure; and
• R156.3 billion for water and sanitation.

He mentioned that the South African National Roads Agency (Sanral) will allocate R100 billion during the medium term to maintain the national road network, while provincial road departments will renovate over 16,000 lane-kilometers of roads within their jurisdictions.

Godongwana also highlighted that the Passenger Rail Agency of South Africa (Prasa) is making steady advancements in revamping infrastructure to provide affordable commuter rail services.

“To sustain this progress, we have provisionally set aside an additional R19.2 billion over the medium term for essential signalling enhancements.”

“This will enable commuters from areas such as Mamelodi, Kwa-Mashu, Motherwell, and Khayelitsha to board a train every 10 minutes, significantly cutting down transportation costs for low-income households,” he remarked.

Godongwana indicated that this allocation would also empower Prasa to fully utilize the 241 new trains acquired through the rolling stock renewal initiative.

Read: Prasa plans to spend R50bn over the medium term [Oct 2023]

However, he cautioned that despite the developments, Prasa’s procurement processes necessitate fortification, and the agency is implementing measures, including assistance from the National Treasury to enhance capacity, reduce risks, and conduct live audits for major procurement projects.

The Budget Review mentioned that state-owned enterprises, public entities, and municipalities are projected to finance 72.7% or R748.5 billion of total medium-term public sector capital investments from their budgets.

Read: Budget 2025: Municipal access to govt grants to be performance-based

State-owned enterprises will contribute more than half of this amount at R410.9 billion – with R215.9 billion from provincial departments, R200.8 billion from local government, R136.8 billion from public entities, R40.1 billion from national departments, and R25 billion through public-private partnerships (PPPs).

Impact on VAT

Dr. Elna Moolman, head of South Africa Macroeconomic Research at Standard Bank Group, informed Moneyweb after the budget postponement last month that if the initially proposed two percentage point increase in value-added tax (VAT) were reduced to one percentage point, “then the other adjustments wouldn’t be substantial.”

“However, if they decide against increasing VAT altogether, many elements outlined in that budget would need to be undone,” she warned.

Read: #Budget2025 in a nutshell – Godongwana tables 0.5 percentage point VAT hike

The review stated that the Budget Facility for Infrastructure (BFI) plays a pivotal role in the capital budgeting framework by endorsing funding for projects that receive joint financing from various sources, including state-owned entities, municipal funds, and the private sector.

It noted that for the 2025 budget cycle, the BFI has authorized nine projects totaling R55.5 billion, with R15.3 billion being funded by the facility, aiding critical sectors such as hospital infrastructure, transport, and water management.

Godongwana indicated that the updated PPP regulations allow national departments to form sector-specific PPP units.

He noted that these units will facilitate private sector involvement (PSP), creating opportunities to optimize the financial health of distressed state-owned entities.

Transnet

Godongwana stated that the Department of Transport and Transnet will pursue market engagement on PSP projects in the following domains:

• Operations of the ore, chrome, coal, and manganese rail lines;
• Expansion and automation of the ferrochrome and magnetite terminal at Richards Bay port;
• The container and automotive sectors, including the potential designation of the South African container port system as a major trans-shipment hub for leading shipping lines;
• The establishment of an independent rolling stock leasing firm.

Godongwana added that if Transnet necessitates gap funding for its PSP initiatives, the BFI would consider these requests after proper project structuring and packaging.

Additional guarantees might also be assessed to refinance the entity’s maturing obligations alongside its capital investment agenda.

Energy Sector

Godongwana announced that the Independent Transmission Programme will launch later this year.

A request for information concerning a multi-line transmission package will be released by the Independent Power Producers Office in July, followed by a request for proposals in November.

Read:
Private transmission projects coming early next year [Oct 2024]
State takes initial measures towards private sector involvement in grid development [Dec 2024]

“These initiatives will empower the private sector to play a strategic role in the expansion of the transmission network.”

Enhancing Infrastructure Financing

The review indicated that the government is implementing reforms to enhance the management of infrastructure financing and develop a pipeline of blended finance projects.

It stated that a consolidated framework supervised by the National Treasury will be introduced during the 2025/26 fiscal year to coordinate state engagement in project preparation, planning, PPPs, funding, and credit guarantees.

This will involve the integration of two units from the Government Technical Advisory Centre, which currently handle PPPs and capital assessments, with the Infrastructure Fund at the Development Bank of Southern Africa.

The review highlighted that PPP regulations are being refined, streamlining approval processes for projects below R2 billion starting June 2025, alongside the establishment of a clear framework for handling unsolicited PPP proposals or bids from the private sector.

Read: SA’s infrastructure drive is gathering pace

Godongwana emphasized that the government’s initiatives to diversify its financing strategy for infrastructure will culminate in the launch of a credit guarantee vehicle in 2026 to attract private sector investment by mitigating project risks.

He mentioned that the initial focus would be on independent transmission aimed at bridging energy transmission gaps, but once demonstrated effective, it would expand to cover other sectors.

Godongwana also noted that the government will introduce its first infrastructure bond in 2025/26 and will further innovate financing tools to diversify sources for infrastructure funding.

Financial institutions, including pension funds, banks, development banks, and international finance organizations, have already expressed interest in getting involved, he stated.

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