South Africa GDP held back by poor infrastructure

South Africa GDP held back by poor infrastructure

Development of infrastructure is one of the top political priorities in Africa, to enable economic growth and competitiveness. Without adequate infrastructure endowment, Africa risks sacrificing about 2% of GDP growth per annum. – World Economic Forum on Africa

The most recent data from the World Economic Forum (WEF) reveals that South Africa, while still enjoying a top place among African states for economic performance, suffers from poor transportation infrastructure quality. After a recalculation placed Nigeria’s GDP above South Africa as the biggest economy on the continent, South Africa needs to improve its infrastructure to stay competitive and maintain its attractiveness as the key African destination for foreign investment.

South Africa’s ranking

Despite the fact that South Africa’s overall quality of transportation infrastructure ranks above the global average of 4.32 on the WEF’s seven-grade scale, its score of 4.51 places it only 58th among the 145 surveyed countries – below the standards of both the developed world and some of its regional peers.

South Africa still outperforms its key regional rivals, such as Kenya and Nigeria, which are ranked 80th and 117th, respectively, as well as the other members of the BRICS group (Brazil, Russia, India and China). On the other hand, South Africa falls behind certain regional peers, such as Seychelles and Mauritius, and is placed as the 7th African state in terms of overall quality of transportation infrastructure.

Where South Africa really excels is its air transportation system. South Africa’s rating of 6.11 places it 15th globally, putting it well above the world average score of 4.94. With South African Airways voted as the best airline in Africa in 2012 for the 10th year in a row, its airway system offers an unprecedented quality comparable to the best airway networks in the world.

The key reasons for country’s poorer performance are its under-developed railway network and, to a lesser degree, its port infrastructure. South Africa in the last 30 years has sacrificed its railway system in exchange for road quality, thus placing it almost one point lower than China, India and Russia and 0.3 points lower than Namibia.

The gaps in railway development have also significantly affected the quality and the cost of maintenance of the road systems across the country, with heavy freight transportation placing a burden on the roads. Importantly, this dynamic is reflected in the unequal distribution of costs between road maintenance and alternative infrastructure projects.

While performing better than the other BRICS, South Africa’s port infrastructure currently also falls behind that of Namibia, Mauritius, Seychelles, Gambia, Suriname and Morocco in Africa by an average of 0.45 points. Since about 96 percent of the South Africa’s exports are by sea, port system improvement remains a crucial piece for the country’s continued economic success as well as for increased global competitiveness for its transportation systems.

The risk of complacency

Despite the government’s renewal of interest in infrastructure development and the adoption of a National Development Plan (NDP) with 18 Strategic Infrastructure Projects to transform the economic landscape of South Africa, the implementation of these projects remains slow. Critical issues relating to the road freight sector, the shift of freight from roads to railways and port development are still inadequately addressed.

It is unlikely that the government will rise to the challenge posed by transportation infrastructure and that it will exploit the window of opportunity provided by resources and the extractive sector in the short term. With the current spate of labor unrest in the mining sector and the economic doldrums expected before and after the election in May 2014, the prognosis on the expedition of infrastructure delivery is likely to be negative.

Such forecasts can be illustrated by reductions in government spending. While the forecast for government infrastructure spending in 2012 predicted the fall from 9.1 percent to 8.1 percent of GDP in 2013, the most recent budget speech by the minister of finance in February 2014 alluded to the reality that the forecast may be between 4 and 5 percent of GDP.

With the government attention shifting to electoral priorities and troubles in extractive sectors continuing, transportation infrastructure development is likely to receive even less attention.

At the same time, key political stakeholders remain complacent given the previous leading role of the country and have recently failed to take advantage of the shifting international support for African infrastructure development.

The Africa-European Union (EU) Summit in early April 2014 launched the Euro100 Million program designed to accelerate the preparation of social and economic infrastructure projects in South Africa, especially in energy, transportation, water, information and communication technology. Yet, president Jacob Zuma failed to attend the meeting.

The president’s withdrawal came against a backdrop of increasing questioning from within Europe about the investment climate in South Africa, particularly in light of protracted strikes and the country’s decision to end bilateral investment treaties with European countries.

In light of these developments and infrastructure challenges after a period of inadequate capital investment in key  transportation systems, South Africa’s continued dream about its promised African leadership in infrastructure may be slipping away, especially if it continues to pass on opportunities to develop the sector.

About Author