Building on optimism — big infrastructure projects return to SA in water, housing, energy sectors

26 Jan 2025

Municipalities, state-owned enterprises and private sector players are starting to open their wallets to spend money on developments that will enhance growth and create much-needed jobs.

The skylines of cities in South Africa might soon feature cranes and scaffolding, as the country is on the cusp of infrastructure projects returning after a 15-year drought.

Several players in the construction industry’s long value chain – from cement producers to property developers – are reporting renewed interest in and preparation for new infrastructure projects, driven by optimism about the domestic economy and the government of national unity (GNU).

Take PPC, South Africa’s largest cement maker. On 16 January, the company announced that it plans to spend R3-billion to build a new cement-making plant at its existing site in the Western Cape.

The plant will start production in 2026 and supply customers in the province as well as the Eastern and Northern Cape. Once operational, it will produce 1.5 million tonnes of cement a year, enough to build about 25 stadiums the size of Johannesburg’s FNB Stadium.

It is a big undertaking by PPC at a time when South Africa is battling a cement oversupply, cheap imports from China, Pakistan and Vietnam that undercut local players, and an economy that is still in the doldrums.

However, PPC chief executive Matias Cardarelli believes there should be enough demand for cement and a market to absorb it. “All the models and scenarios we have run point to the construction market and economy growing in the years to come. We believe that we are at the bottom of the negative construction and infrastructure cycle in South Africa,” he said.

Cardarelli is betting on President Cyril Ramaphosa’s multibillion-rand strategy to fix crumbling infrastructure, especially in many dysfunctional municipalities, which is set to spark a building boom.

The GNU plan to revive construction

Ramaphosa’s strategy seeks infrastructure projects that support economic growth and improve quality of life such as fixing potholes, improving water and housing in communities, building bridges in rural areas, and installing towers that deliver high-speed internet access for public schools and hospitals.

Mega infrastructure projects are a centrepiece of this strategy and include fixing breakdowns in rail infrastructure that have hobbled exports of coal, iron ore and other minerals. The expansion of high-voltage power lines in the Western, Eastern and Northern Cape is also in the pipeline so that the renewable energy produced by private players can be connected to the national grid.

Read more: Fixing municipalities and their crumbling infrastructure a centrepiece of Ramaphosa’s plan to grow economy

Ramaphosa has repeated the promise of improving infrastructure every year since 2018, without progress. The government has struggled to get infrastructure projects off the ground because of a lack of capacity – there haven’t been enough engineers and project managers in local government and provinces to initiate and manage projects.

This has led to South Africa having few or no new infrastructure projects to fund or showcase to private sector investors, who also want to put money into such projects through partnerships with the government.

Cardarelli believes the government will “walk the talk” this time, but he has left room for disappointment. “We are looking at the new infrastructure plan that the GNU emphasised is coming. We are cautiously optimistic,” he said.

His cautiousness is supported by Andries van Heerden, CEO of Afrimat, a supplier of building materials such as cement, bricks and ready-mix concrete. Van Heerden said the building material industry had experienced “slightly elevated volumes from road, rail and dam projects, and we continue to experience demand for our aggregates”.

However, Van Heerden is not yet seeing a massive uptick in the infrastructure development and maintenance side of the economy, though “surely small pockets of demand are opening up”. He believes South Africa needs to improve port and rail logistics and generally achieve a higher economic growth rate to stimulate much-needed job creation if it wants to see mega infrastructure projects like those in the run-up to the World Cup in 2010, when public infrastructure spending spiked.

Pipeline of projects

There are already public sector-led projects coming to the market that can reduce unemployment and stimulate economies at a more regional and local level.

The City of Cape Town recently announced a plan to invest R43-billion in infrastructure development, mainly water and sanitation projects, which is expected to create 135,000 jobs.

The Tshwane and Johannesburg municipalities and some in Limpopo are embarking on housing, school and water infrastructure projects.

State-owned enterprises (SOEs) such as Eskom, Transnet and the Airports Company South Africa are also getting in on the action, spending money to expand electricity, transport and water infrastructure, as well as manufacturing facilities. According to figures from Nedbank, municipalities, SOEs and private sector players invested R793.7-billion in new megaprojects in South Africa during the first half of 2024. This trumps the R193.2-billion and R260.4-billion recorded in 2023 and 2022, respectively.

The return of public sector-led infrastructure projects is welcome news considering that the government has consistently neglected spending on them over the past 15 years to redirect money to fund fee-free higher education and offset low tax revenue collection.

Underscoring this is that South Africa’s gross fixed capital formation – a measure of investments including new infrastructure projects – should be 30% of GDP as envisaged by the National Development Plan, but languishes at about 16%.

The GNU has embraced a new approach to convince the private sector to get on board with state-led infrastructure projects. Treasury is revising regulations to attract private sector investment in public infrastructure projects by offering incentives and launching a credit guarantee vehicle, backed by the World Bank, to de-risk such projects.

Private investors typically use debt to fund large infrastructure initiatives and seek shared debt risk with the government to motivate their participation.

Previously, under the Renewable Energy Independent Power Producer Procurement Programme, the government guaranteed up to 100% of debt taken up by private sector players for these projects. This exposed public finances to significant risk as taxpayers are liable for repayments in the event of private sector players defaulting.

Read more: GNU woos private sector to boost infrastructure projects for job creation

The new credit guarantee vehicle aims to transfer risk from government finances to the World Bank’s Multilateral Investment Guarantee Agency, which insures investments in developing countries against political risks. Treasury director-general Duncan Pieterse said infrastructure projects would focus first on electricity transmission and then consider water and transport projects. The credit guarantee vehicle is expected to be operational by the end of 2025.

Economic conditions are now more favourable for private sector players to fund infrastructure investments. Independent property analyst Keillen Ndlovu said the recent fall in interest rates would give real estate developers the room to secure debt at cheaper rates. Continued positive sentiments about the GNU and better economic growth prospects would also create an enabling environment for investments. DM

This story first appeared in our weekly Daily Maverick 168 newspaper, which is available countrywide for R35.

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The GNU plan to revive construction

Pipeline of projects