Infrastructure spending is considered to be one of the major catalysts of economic growth, development and economic activity. It can be regarded as a mechanism of generating employment opportunities for millions of unskilled, semi-skilled and skilled workers. For this reason, it is one of the key focus areas of South Africa’s National Development Plan.
In his Medium Term Expenditure Framework, South African Minister of Finance, Pravin Gordhan provided insight into the South African Government’s planned infrastructure spending over the Medium Term Expenditure (MTEF) period, 2013/14 to 2015/16.
Minister Gordhan announced that Government plans to allocate over R920 billion to public sector spending on infrastructure over this period. In his budget speech, Minister Gordhan also noted that decisions on which infrastructure projects to implement would be guided by the National Development Plan (NDP).
“The NDP provides clear guidelines for capital investment priorities and the sequences of decisions required to ensure that the country’s infrastructure needs are provided for in a sustainable, equitable, affordable and practical manner,” Gordhan said. Through the NDP, the Government has provided a framework for driving economic growth. However, KPMG believes that the cooperation of all players in the South African economy will be key to the successful implementation of the goals outlined in the NDP.
Lullu Krugel, Senior Economist at KPMG in South Africa, highlighted the importance of private sector investment in making the NDP happen, and particularly the impact on employment creation.
“KPMG calculated the private investment spending gap that would need to be filled to align with the NDP investment spending objective of 20 percent of GDP. By increasing private sector investment in South Africa to at least 20 percent of GDP and Government investment to 10 percent of GDP could assist in addressing the unemployment problem, potentially creating 3.75 million job opportunities a year at the end of the NDP period,” said Krugel.
Based on the planned MTEF infrastructure spending, which is less than the forecast in the National Development Plan, and provided that Government will successfully spend the entire infrastructure budget, it is envisioned that the result of the infrastructure spending projects could create approximately 2.4 million job opportunities. This is equivalent to an average of over 800 thousand job opportunities per annum for the next three years.
In the event that Government succeeds in achieving the National Development Plan infrastructure spending objective between 2013/14 and 2015/16, potential job opportunities or employment could be create for 3.4 million people over the 3 year period, averaging over to 1.1 million opportunities per annum.
These job opportunities include direct employment through the infrastructure projects, indirect employment opportunities due to spending in other sectors such as suppliers of cement and steel to these projects, and the induced or knock-on effects resulting from, for example, workers employed at these projects spending their income on food and clothing and, as such, creating additional employment opportunities for retailers.
“If South Africa is to achieve the objectives set out in the NDP, both Government and the private sector will have to prioritise the completion of infrastructure projects that deliver job creation opportunities,” concludes Krugel.