25/05/2025 | By Busiswe Mavuso
- The amount to be spent on infrastructure investment in the budget of R1-trillion over the three-year medium-term expenditure framework is important.
- It is critically urgent to get economic growth going, without which we cannot pursue meaningful job creation and generate the revenue that would enable government to increase spending on other areas.
- One area that will hopefully see much more infrastructure investment is local government, by crowding in private sector investment through public/private partnerships.
A lot happened last week, from the third budget being tabled to the meetings of our president with his United States counterpart. Within all that was going on, little comment was made on one element of the budget that will be very important to our future: the amount to be spent on infrastructure investment.
Despite important efforts to contain expenditure, infrastructure is expected to see R1-trillion of investment over the three-year medium-term expenditure framework. That figure was protected through the budget revisions despite National Treasury having had to cut some expenditure lines to accommodate lower growth and constrained tax revenue. Maintaining infrastructure spending is critical to the key challenge of getting economic growth going, which will lead to sustainable job creation. Without that, we cannot generate the revenue that would enable government to increase spending on other areas.
The budget includes spending on electricity, rail, water and other transport infrastructure. A large part of that is about fixing our logistics system which is currently significantly constraining economic activity, deterring both local and foreign investment. Economists have estimated that Transnet costs the country R1bn/day in economic activity because of its inefficiencies. Our mines and factories cannot get their output efficiently to ports and from there to markets in the rest of the world. Although there have been improvements recently, South Africa still has among the most expensive ports in the world.
As President Cyril Ramaphosa’s visit to the US made clear, we need dependable and stable trading relationships with major world markets. Through its tariff moves, the Trump administration has severely disrupted a global trading system based on equal treatment and rules of conduct. South Africa has to deal with this reality. I hope our negotiators can make headway in forming agreements with the US, but, like the rest of the world, we must be prepared for a future that sees significantly reduced trade with America. Many commentators are arguing that trade will swing from West to East because of US isolationism, which means increased trade with China, India and other emerging markets, including across Africa, though Europe will remain a critical market for our output too.
In that scenario, the global trading system is going to be more competitive, with a smaller market available for our outputs. It will be more important than ever that we are efficient. Currently, our goods are more expensive just because it costs so much to get them from where they are produced to where we need to sell them. Countries like China put a great deal of focus into making sure their ports are very efficient – it is critical to their economy’s performance.
One area that I hope to see much more infrastructure investment is in local government, by crowding in private sector spending through public/private partnerships. The finalisation of revisions to PPP regulations last year should enable that, but it will take concerted effort and political will by municipalities to actually use the space that has been created. The Operation Vulindlela 2.0 process will include a special effort on municipal performance. PPPs are a potentially important mechanism to get new infrastructure to happen in a sustainable and cost-effective way.
I was also pleased to see in the budget several plans to rein in expenditure that is not productive. With the tax options limited, government has to find ways to contain expenditure. Spending reviews already done by National Treasury have identified tens of billions of rands in potential savings from poorly performing or inefficient programmes. As it noted in the Budget Review, if government acts on its recommendations of these reviews, it may mitigate the need for additional taxes in the 2026 budget. I hope this year’s budget experience has made the tradeoffs between tax and spending that much clearer to everyone. For too long, we’ve allowed spending to grow and never done the hard work of looking at whether that spending is delivering value for money to our people. The budget process must in future look at underperforming government programmes and shut them down.
Another area Treasury has made positive progress is the social relief from distress grant. This was introduced during Covid to support people during lockdowns, when economic activity was sharply curtailed. It was a lifeline for people who simply could not find economic opportunities in the context. However, it was never meant to be permanent welfare support and has become a large item in the budget, costing R35bn this year, more than three times the revenue the proposed half percentage point VAT increase would have raised.
Treasury will now investigate replacing the SRD grant with a job seekers’ allowance. This makes a lot of sense – we should be supporting people, specifically our youth, to access the job market. A carefully designed support programme that enables people to access potential jobs would be far more sustainable than the SRD grant.
It is also highly positive that this budget appears to have the political support to pass all the parliamentary processes ahead of it. While the process of three budgets in a year is unprecedented, the political mechanisms have worked to bring us to a place that is positive for the country. That will be good for investor sentiment, which is another important part of the effort to get economic growth going. Business and government, we can now get on with it.
