2018 National Budget: Spending cuts for infrastructure

Infrastructure Investment Spending Cuts

The former Minister of Finance, Malusi Gigaba, delivered the 2018 National Budget Speech on 21 February 2018. Whilst the 2018 National Budget prioritises spending on social and economic infrastructure in line with the medium-term strategic framework and the National Development Plan, as part of the attempt to stabilize the growth in public debt and narrow the budget deficit,there is a considerable reduction in estimated public-sector infrastructure spending from the values projected in 2017. 

R834.1 billion has been allocated to public-sector infrastructure spending over the next three year period, a 12% decrease in nominal terms from the amount allocated in 2017.  Treasury has noted that cuts to public-sector infrastructure spend, particularly cuts to large programmes and transfers to public entities (including a cut in infrastructure conditional grants),will likely delay the commencement and completion of a number of large infrastructure projects.

The public sector infrastructure programme encompasses energy, transport and logistics infrastructure, housing subsidy initiatives, health and education facilities as well as investment in water and sanitation infrastructure.

Energy

Approximately R74 billion has been earmarked for the Energy sector for 2018, with expenditure expected to amount to over R218 billion over the next 3 years which represents an overall decrease in energy expenditure from the R234.5 billion projected in 2017.

Despite the overall decrease in projected energy expenditure, Government confirmed its commitment to procuring the 14 725 megawatts (MW) from renewable energy sources in terms of the Renewable Energy Independent Power Producer Procurement Programme and in line with the Integrated Resource Plan for Electricity 2010.   This commitment will be welcomed by private sector investors who have been severely impacted by the ongoing delays to the continued implementation of the Renewable Energy Independent Power Producer Procurement Programme.

R197.3 billion of the total allocation for the energy sector has also been allocated to Eskom Holdings SOC Limited for investment in the Medupi and Kusile power stations as well as various other projects.  

Household access to electricity will be another point of focus for the Department of Energy over the medium term period with a total of R17.3 billion allocated to support the Integrated National Electrification Programme in financing grid and non-grid connections.

The Solar Water Heater Programme which is expected to produce and install 57 000 solar water heater units and save 1.5 terawatt-hours of energy over the next three years will continue to receive support from the Department of Energy despite an expected decrease in spending over the medium term. 

Water and sanitation

R118.2 billion has been allocated for expenditure on water and sanitation over the next three years, down by approximately R7 billion from 2017, with the Water Infrastructure Development Programme allocated over R39 billion over the medium term.

R17.9 billion has been earmarked for expenditure on the regional bulk infrastructure grant over the medium term for the construction of various regional bulk water and sanitation projects with over R13 billion allocated to the water services infrastructure grant, which will be used to replace the remaining 11 844 bucket sanitation systems in the Free State and Northern Cape provinces.

Transport and logistics

Investments in transport and logistics aimed to improve the national transport infrastructure network, enhance the mobility of people and services, reduce transport costs and facilitate regional trade, will account for R288 billion over the medium term with revenue from services provided by state-owned companies expected to help fund infrastructure investment.

A large portion of these funds have been allocated to SANRAL, PRASA and the provincial roads maintenance grant respectively over the medium-term expenditure framework (MTEF) period for the maintenance and modernisation of road and rail infrastructure.

Allocation to this sector in the 2018 Budget has been increased by 0.5% to 34.5% of the total public-sector infrastructure expenditure from the allocation in 2017, while the total amount projected to be spent in this sector over the MTEF period is R39 billion less than projected in 2017. 

Human Settlements

The Department of Human Settlements' planto deliver state-subsidised housing through 31 projects over the next three years will receive Governmental support of over R101 billion to assist the Department in achieving its goal of providing 1.5 million state-provided housing subsidies by 2019.

Health

The Department of Health is expected to spend an estimated R21.1 billion on healthcare infrastructure in the areas of greatest need with provincial health departments set to receive over R18 billion over the medium term to fund the upgrading, refurbishing and maintenance of existing healthcare facilities, and the construction of new facilities.

Education

The Department of Basic Education plans to reconstruct 61 small schools in 2017/18 and 2018/19 using the R3.8 billion that has been allocated to the school infrastructure backlogs grant. In 2018/19, the Department will use R1.5 billion to replace 50 inappropriate and unsafe schools with newly built schools, and provide water to 325 schools and sanitation to 286 schools.

The education infrastructure grant whichprovides co-funding for the ongoing infrastructure programme in provinceshas been allocated R31.7 billion, of which R1.5 billion is earmarked for school infrastructure maintenance.

Over R3 billion has been allocated to continue construction at the University of Mpumalanga and the Sol Plaatje University with all other public universities set to receive R8.5 billion in total over the medium term for the maintenance, construction and refurbishment of student accommodation, lecture rooms and laboratories.

State owned entities

In his speech, the former Minister of Finance recognised that state-owned companies operate network industries that underpin our country’s economic growth potential.

At over R368 billion over the next three years, state-owned companies continue to be the single largest contributor to capital investment despite a decrease in spending of over R60 billion from the values projected in 2017. Expenditure at Eskom is expected to account for over 90% of the energy expenditure at R197.3 billion over the medium term with approximately R101 billion allocated to Transnet over the same period.

Conclusion

The former Minister of Finance stated that 2017 was a year characterised by slow economic growth, recession, ratings downgrades, and heightened concerns regarding the governance and sustainability of key state-owned companies.  Whilst the 2018 National Budget Review reaffirms the implementation measures for the National Development Plan in terms of which infrastructure investment is a crucial element, the overall decrease in projected public-sector infrastructure expenditure from R947.2 billion in 2017 to the R834.1 billion projected in the 2018 National Budget Review highlights the Government's commitment to ensuring the sustainability of the nation’s finances by balancing the necessity and importance of investment in public-sector infrastructure with the need to stabilize the growth in public debt.