South Africa infrastructure spend plans soar as energy woes ease

Bloomberg

The value of South Africa’s planned investment projects increased sharply in the first half of 2024, boosted by sustained electricity supply, easing logistical constraints and slowing inflation, according to a report by Nedbank Group.

The value of announced new projects jumped to an annualised R793.7 billion ($43.6 billion) in the first six months, dwarfing the R193.2 billion for 2023, the lender said in its Capital Expenditure Project Listing report released Monday.

Many of the projects were inked before the country held elections on May 29.

Business sentiment since then has risen after the African National Congress formed a coalition with centrist rivals including the Democratic Alliance because voters denied it an outright majority for the first time since 1994.

“The government of national unity is expected to accelerate the implementation of structural reforms,” Nedbank said. “These will lift business confidence and prompt companies to resume capacity expansion programs.”

Government and public corporations accounted for the bulk of the announced projects, with the private sector behind a quarter of them. Many of the public works focused on the energy sector, health care, airport infrastructure, special economic zones, road rehabilitation and water desalination plants, the lender said.

The jump in projects aligns with President Cyril Ramaphosa’s pledge to turn the country into a construction site to boost economic growth, which has averaged less than 1% for the past decade due to logistical challenges, crime, corruption and mismanagement.

Improvements in the supply of electricity have been evident for several months, as measures to boost the performance of state power utility Eskom yielded results.

South Africa since late March has been free from planned power cuts, known locally as load shedding, which have been a significant deterrent to investment.Still, weak growth has crimped South Africa’s public finances and Nedbank saw ongoing efforts at fiscal consolidation slowing implementation.

“The impact of the pickup in capital expenditure plans in 2024 will likely materialise in 2025,” Nedbank said.

“Even so, the risks to the outlook remain to the downside given a fragile global economy and delays in local economic reforms, which could result in cancellations or postponements.”