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Infrastructure

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The main highlight of President Zuma’s State of the Nation Address was his announcement of several new infrastructure projects. This seemed to go down well with the popular media, who called it an “ambitious” speech, and the general impression seems to be that infrastructure spending is difficult to fault given the crumbling condition of many rural roads, the frequent warnings of electricity shortages and the high costs, and slow speed, of internet access.

But what is often missing in the public discourse is that infrastructure spending decisions are implicitly decisions about industrial policy, which implicitly influences a country’s comparative advantage. Because infrastructure are expensive, it is simply impossible to simultaneously provide all infrastructure service requirements at once: fix all roads, reduce all port charges, provide low cost internet coverage across the country. Choosing one project means not choosing another. This means favouring certain industries against others: a new railway linking a iron-ore mining town to a port, for example, would entail few benefits for those sectors outside mining.

So what were the projects Zuma announced: firstly, a “plan to develop and integrate rail, road and water infrastructure, centred around two main areas in Limpopo: the Waterberg in the Western part of the province and Steelpoort in the eastern part”. Zuma is clear on its intentions: this investment is intended to “unlock the enormous mineral belt of coal, platinum, palladium, chrome and other minerals, in order to facilitate increased mining as well as stepped-up beneficiation of minerals”. There should be no doubt about the sector that profits from this investment.

Secondly, government “will improve the movement of goods and economic integration through a Durban-Free State-Gauteng logistics and industrial corridor”. R200 billion will be allocated to rail improvements and R100 billion on port projects to “connect the major economic centres of Gauteng and Durban/Pinetown, and at the same time, connect these centres with improved export capacity through our sea-ports”. As South Africa’s main industrial hub, Gauteng needs a rapid, reliable and low-cost connection to the global market, and this certainly is an attempt to reduce these transport costs. Manufacturing seems to be the main beneficiary of this investment, although Zuma does mention that “amongst the list of planned projects, is the expansion of the Iron Ore Export channel from 60 million tons per annum to 82 million tons per annum”, as is a “new 16 million tons per annum manganese export channel through the Port of Ngqura in Nelson Mandela Bay”. Mining, again, seems to benefit.

A third project envisages the agricultural development and improvement of export capacity in the Eastern Cape region. Less detail is available in the President’s speech, but this lower logistics costs seems to be the main focus. A new dam will also provide water to farmers in the former Transkei. Agriculture, thus, and perhaps the existing motor vehicle manufacturing industry are the most likely beneficiaries of these plans.

Fourthly, in the North West, government “will expand the roll-out of water, roads, rail and electricity infrastructure. Ten priority roads will be upgraded.” The main economic activity in North West remains agriculture and mining, and they will arguably be the main beneficiaries of this investment.

Fifthly, Zuma sees “enormous potential along the west coast of the country and [we] need to improve infrastructure to unlock this potential. Our plans include the expansion of the iron-ore rail line between Sishen in Northern Cape and Saldanha Bay in the Western Cape, which will create large numbers of jobs in both provinces. The iron-ore capacity on the transport-side will increase capacity to 100 million tons per annum.” Mining.

Of the five key infrastructure projects South Africa chooses to invest in, two is entirely dedicated to mining, while another two will, in addition to agriculture and manufacturing, also benefit mining. Considering that the Industrial Policy Action Plan (IPAP2) released by Minister of Trade and Industry Rob Davies in 2010 focus on “metals fabrication, capital and transport equipment, green and energy saving industries and agro-processing” as strategic sectors, as well as sectors which were identified in the first Industrial Policy Action Plan, namely “automotives and components, medium and heavy vehicles, plastics, pharmaceuticals and chemicals, clothing, textiles, footwear and leather, bio-fuels, forestry, paper, pulp and furniture, cultural industries and tourism and business process services (or call centers), nuclear, advanced materials and aerospace” the infrastructure spending plans of government seems to weight too heavily on one specific sector.

There is no mention in the infrastructure plan, for example, of investments in information and telecommunication networks. The only investment of note in the service industry, is the Square Kilometre Array radio telescope which South Africa is bidding to host. No extra funds, though, is promised. Rather, “we urge you to support the country’s bid”.

Infrastructure investment offers a rare chance to shape a country’s industrial future. There is no doubt our existing comparative advantage is in mineral resources. But is that the future we collectively envisage? Will we, for example, be satisfied if we reduce our high unemployment rate by providing jobs in the static, low-paying mining sector, jobs that can easily shift to lower-paying jobs in other resource rich countries? Will our dwindling mineral resources be able to compete with the mineral wealth of the rest of Africa? In addition, mining companies often provide their own infrastructure; by substituting private infrastructure with public infrastructure, the government is in fact boosting mining profits, exactly the opposite intention of the nationalisation/mining tax debate that is currently in the public sphere.

This is the most opportune time in our history to shift our comparative advantage to a dynamic, entrepreneurial and, incidentally, the fastest growing sector globally: services. Our kids should dream of designing mobile applications rather than working in an iron-ore mine. They should dream of becoming accountants, designers, bankers, scientists, musicians, football stars to a global audience, rather than forced to work menial jobs. Infrastructure investment is the catalyst to such a future. Rather than focus on the mining industry, this country should ensure that every urban kid has access to a fast and cheap internet connection, has a computer in her school, has access to quality health, education and, as she grows older, financial services. Reliable rail services, quality roads and reliable electricity are important, as are lower port fees, but so are clean water and sanitation services. Cities are the incubators of economic growth, which means we should direct infrastructure spending to these areas.

Our country has a scarred history. If we want to live in a nation where the past has less of a footprint, and where the chance to prosper is not restricted to a fortunate few, we need to put much greater emphasis on the services sector, and less on mining. While infrastructure investment may alleviate the acute unemployment problem that defines the state of our nation, the type of infrastructure we choose reflects, perhaps unwittingly, the state of our future.

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Written by Johan Fourie

February 11, 2012 at 07:43

3 Responses

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  1. […] I’ve written before, infrastructure like sports stadiums says a lot about the city’s vision for its future. Cape […]

  2. Good comment, Lee. Although I would argue that investment in infrastructure can by definition not be a short-term strategy. Remember, using limited resources on “mining infrastructure” implies fewer resources for other infrastructure types, such as trying to improve the “deteriorating public education system”. Either we create a work force that is allowed to access the “knowledge economy”, or we provide jobs that will give kids even less of an incentive to work hard in school. Of course, some people will be left behind (or, more aptly, remain behind), but we must do all we can to create a society that incentivise entrepreneurship, innovation and knowledge creation. That is not a society where mining infrastructure is given precedence.

    Johan Fourie

    February 17, 2012 at 10:11

  3. Agreed. Throughout the 1980s, the Asian Tigers used production methods typical of economies with income level higher than their own, contributing to their sustained, phenomenal economic growth, whereas a country like Mauritius for example, used production techniques typical of income-levels lower than their own. This led to large success in exports, but economic stagnation. It is therefore an astute strategy to promote infrastructure development to support industries more sophisticated than mining.

    But with an economy with an unemployment rate as high as ours, is investment in mining infrastructure not an appropriate short-term strategy? An expansion of the mining sector potentially means that thousand of jobs for the low-skilled masses, can be created in a relatively short time. Should a shift to focusing on the services sector not be reserved for once we sort out our deteriorating public education system? We need a system which produces numerous individuals who excel in maths and science if we are to pursuit industries where our kids can design “mobile application” on a large scale. Will the amount of time it takes to train a large-enough portion of the labour force which is capable of providing knowledge-intensive services not leave behind too many casualties?

    Lee Langenhoven

    February 12, 2012 at 20:51


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