South Africa is falling apart in plain sight by Bianke Neethling

[Nat Quinn]

South Africa’s infrastructure is falling apart, with significant maintenance required and new projects being delayed by challenges like the construction mafia.

When the Government of National Unity was formed in 2024, President Cyril Ramaphosa said their goal was to “turn our country into a construction site”.

The President established infrastructure as one of the government’s top priorities and a cornerstone of the goal to grow South Africa’s economy.

However, this may be easier said than done, as South Africa’s challenges are twofold – the country needs to maintain and fix its old, crumbling infrastructure while embarking on new projects.

Public Works and Infrastructure Minister Dean Macpherson recently revealed in response to a Parliamentary question that the department’s maintenance portfolio receives thousands of reports.

He said the portfolio received around 198,599 calls for maintenance services in the past three years alone.

In addition, the department’s Infrastructure Projects Portfolio has recorded approximately 83 delayed infrastructure projects due to various contractual challenges.

This includes eight infrastructure projects impacted by disruptions caused by construction mafia groups at project sites.

Allianz’s 2024 Risk Barometer, which compiles the views of over 3,000 risk management experts worldwide, identified infrastructure collapse as the most significant risk facing South African companies.

“The persistent threat of power outages and infrastructure failures poses significant challenges to businesses, disrupting supply chains and impacting the overall economy,” said CEO of Allianz Commercial South Africa Thusang Mahlangu.

“The report underscores the urgent need for investment in infrastructure resilience and the development of contingency plans to mitigate the potential consequences of blackouts.”

The Reserve Bank (SARB) has also warned about the threat South Africa’s crumbling infrastructure poses.

“The sustained deterioration in critical infrastructure poses direct operational risks that could disrupt the functioning of the financial system,” the Reserve Bank said in its latest Financial Stability Review.

“While electricity availability appears to be gradually returning to historical trends, other critical infrastructure such as the supply and quality of water and transport infrastructure – especially rail, port and road networks – continues to degrade.”

Far-reaching consequences

The country’s crumbling infrastructure has far-reaching consequences that go beyond its economic impact.

Old Mutual Insure’s chief actuary, Ronald Richman, and the head of strategic accounts at Old Mutual Insure, Molebatsi Langa, previously warned that South Africa’s worsening infrastructure and rising frequency of severe weather events are compounding the country’s insurance crisis.

They explained that South Africa, once a catastrophe-free zone, now faces frequent natural disasters.

In 2023, the insurer recorded ten weather-related claims events, including major storms in the Western Cape and hailstorms in Gauteng and Mpumalanga, costing millions.

Globally, smaller, frequent weather events have emerged as a significant challenge, destabilising the insurance industry.

“Given this picture, it is not far-fetched to believe climate change has the potential to destabilise the global insurance industry, with ripple effects for South Africa,” Richman said.

Climate change and structural changes in the reinsurance market, such as reduced risk appetite by reinsurers, leave insurers struggling to manage losses and sustain capital reserves.

Locally, the situation becomes more complex when considering South Africa faces additional pressures, including political instability, load-shedding claims, water shortages, and deteriorating road infrastructure.

In addition, poorly maintained and congested roads, exacerbated by increasing vehicle numbers, heighten safety risks and contribute to rising insurance claims.

Therefore, Insurers are forced to either increase premiums or reduce coverage, creating a challenging environment for the industry and consumers.

Plans in place

Fortunately, the government has plans in place to address the country’s infrastructure decline.

In August 2024, Nedbank said the government is putting active recovery and investment plans in place to boost infrastructure projects in partnership with the private sector.

The bank said this is a welcome change after the 2024 National Budget limited additional spending on infrastructure to service the debt of state-owned enterprises (SOEs) – most notably Eskom and Transnet.

“The new emphasis on public-private infrastructure partnerships should create downstream business opportunities and boost economic activity,” the bank said.

Earlier this year, Macpherson said the Public Private Partnership (PPP) model for the privatisation of government buildings necessitates the need to establish a state asset management company to directly raise equity, shareholding participation and generate sustainable revenue.

This was in response to a Parliamentary question from the IFP’s Siphosethu Ngcobo.

Macpherson said his department is undertaking several PPP initiatives to roll out various government facilities.

He explained that South Africa’s current economic trajectory requires a change in approach, especially since the National Treasury has indicated budgetary constraints on funding all identified capital projects.

“The model would create value through leveraging private sector capital to optimise state facilities for various uses,” Macpherson said.

“The programme is set to cushion the state from various inherent risks – cost escalations, project delays, lack of adequate and/or appropriate capital budget – and ensure that projects are completed within budget, quality, and on time.”

 

source:South Africa is falling apart in plain sight – Daily Investor

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