FINAL

27/10/2015

EKN 320 RESEARCH PROJECT Is the NDP a blessing or another broken promise?

BOSHOFF A 11149231

LEATHERN WD 14198534

LOTTER A 10556827

MNGOMEZULU TP 100036866

MODISELLE MK 10275381

REYNEKE N 13289676

SANDILE A 10420160

TLOUBATLA MT 10518160

VAN DER MERWE JD 12009301

EKN 320 RESEARCH PROJECT

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TABLE OF CONTENTS

Profile of the South African Broader Economic development between 1995 to present .............. 2

Changes in demography ........................................................................................................ 2

Economic Growth and changes over time .............................................................................. 3

Levels of investment and savings along with their changes over time .................................... 5

Labour force profile and changes over time ............................................................................ 8

Education levels and changes over time ................................................................................. 9

Diverse other indicators of development over time ................................................................10

South African Development within the regional context .............................................................12

Economic infrastructure with context to the NDP .......................................................................13

Electricity ...............................................................................................................................13

Information and Communication Technology .........................................................................16

Transport ...............................................................................................................................19

Water.....................................................................................................................................25

Assessment of the economic infrastructure of South Africa .......................................................32

Electricity ...............................................................................................................................32

Information and Communication Technology .........................................................................33

Transport ...............................................................................................................................33

Water.....................................................................................................................................34

Bibliography ..............................................................................................................................35


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PROFILE OF THE SOUTH AFRICAN BROADER ECONOMIC DEVELOPMENT BETWEEN

1995 TO PRESENT

CHANGES IN DEMOGRAPHY

In 1893 a new program was introduced by the Science Committee of the Precedence Council,

which aimed to align the population numbers with the available resources. This program was

called the Population Development Program also known as the PDP. (Plessis, 2006)

The total population of South Africa has increased at a steady rate since the Apartheid era. The

census figures in 1996, 2001 and 2011 show that, the overal population has increased by 10.43%

between the years 1996 and 2001. During the years 2002 and 2011 the population increased by

15.51%. The most populated province in 2011 was Gauteng and the least populated province

was the Northern Cape.

The 2013 mid-year estimated population size of the country is 52 982 000 therefore resulting in

an estimated growth rate of 23.4002% from 2011. (Statistics South Africa, 2013)

Urban-Rural Split

According to the results from the Census conducted in 1996, 2001 and 2011; there has been a

gradual increase of people living in urban areas. The province that has the highest number of

individuals living in rural areas is Limpopo. In 1996 89% of Limpopo’s population was living in

rural areas. This figure only decreased in the 2011 census with only 86.7% of individuals living in

Figure 1: South Africa population count census 1996, 2001 and 2011


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rural areas. The Province with the highest number of individuals living in urban areas was Gauteng

with 97% in 1996, and with 97.2% of its individuals living in urban areas in 2011. Although all

provinces in South Africa are becoming more urbanised some provinces still have a relatively high

population percentage living in rural areas. (Statistics South Africa, 2003)

ECONOMIC GROWTH AND CHANGES OVER TIME

South Africa has recently become the second largest economy in Africa, sliding down from first.

This is due to the fact that the country relies heavily on exports of natural resources such as gold,

coal and platinum. South Africa’s economy grew after the apartheid years due to sanctions being

lifted and more employment options being created; these sanctions were trade and financial

sanctions (Smit, 2006). This allowed South Africa to trade on a global level. The average

economic growth between the years, 1995-2004, was 3% - this was an increase from 0.8% during

the apartheid years.

Due to the sanctions being placed on South Africa it forced the government to focus spending on

the primary sector. Since 1994 all other sectors have increased namely the Secondary as well as

Tertiary sectors. This is understandable as the current government had to focus on growing the

economy as a whole and maximizing job opportunities. More and more emphasis is being placed

on the tertiary sector as most of the growth with in a country takes place in that sector.

(South African Economic Growth, 2015)


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One of the most drastic changes in the South Africa was the implementation of BEE, Black

Economic Empowerment. The aim of BEE was to, increase the number of black people in

management and ownership positions in companies, help with training and development of

previous disadvantaged people as well has having a fair representation of people of colour in a

company. (PRESIDENCY, 2003)

With this plan economic growth was expected to increase due to an increase in labour force as

well as the skill of the work force. However the carrying out of BEE had a negative impact on the

country and it shoved a massive gap between the different races in the country. In 2011 the BEE

act was revised and later called Broad-based black economic empowerment, BBBEE. This plan

has proved to be better for the economy.

During 2008 there was a decrease in economic growth due to a global recession; crippling the

major economies of the world. This saw a decrease in GDP from 6% to -6%. South Africa has

never fully been able to recover since the recession as the country is heavily affected by China

and America. The decrease in China’s economic growth recently to 6.8%, its lowest since 2009,

has had a major effect on South Africa as China is importing less from South Africa.

Recently the financial and Industrial sectors have been providing South Africa with most of its

economic growth. This is a positive sign for the country as it shows that more and more people

are investing in the country and more emphasis is being placed on expansion of infrastructure.

The other sectors in the economy have performed poorly due to domestic vulnerabilities in key

sectors. The weakening rand has also damped the economy and this is due to the gradual

normalization of unconventional monetary policies as well as other domestic challenges.

(Comprehensive Growth Strategy: South Africa, 2014)

The economy keeps on being flooded with negative news which decreases confidence related to

the economy. The labour strike in the mining industry resulted in South Africa being able to export

less as well as resulting in less raw materials available for production. A down grade of the

countries sovereign debt resulted in an increase in the volatility of government bonds which would

affect the level of investment with in the country. Gross domestic expenditure has been on the

decrease which effects the supply as well as the volatility of money in circulation. With less money

switching hands each day; it resulted in a decrease in GDP. During 2015 power utility, Eskom,

completely destroyed all hope in South Africa with load shedding, this caused major companies

to lose millions of rands which could have helped the economy grow.


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LEVELS OF INVESTMENT AND SAVINGS ALONG WITH THEIR CHANGES OVER TIME

The level of investment in a country is very important as it is one of the major sources of economic

growth within an economy- the higher the level of investments the more money a country has

which results in more spending and more development with in a country. Gross domestic

investment goes hand in hand with national savings along with the balance on the current account.

The above figure shows that Investment and savings go hand in hand and the trend is very similar

for all three variables on the graph. The decrease in investment and savings is a major concern

for South Africa as it results in slow development and economic growth, since 1994 there has

been a less of a decrease.

Economic models have concluded that savings is directly related to the current level of income.

The South African Reserve bank has the only say in the level of savings in South Africa, however

even if interest rates increase and savings increase it doesn’t mean that an economy will grow.

The savings rate along with the investment levels has decreased since 1994 but the country has

experienced an increase in economic growth.

In 2006 it was identified that the low levels of investment with in the country would become an

issue and recently is has. The NDP has set out specific needs for the country however those


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needs are all short and medium term goals. The country needs to focus more on long term

infrastructure goals so that the level of investment can increase. There has been a somewhat

increase in the level of investments in the public sector; the increase was from 26 percent (1994)

to 37.1 percent (2015). The current state of government controlled companies had damped the

spirits of investors recently as Eskom is unable to supply enough electricity to the country resulting

in a decrease of profits of other companies and resulting in investors placing their money

elsewhere. The country is relying heavily on the private sector to support the current sector. This

places added stress on a very small and delicate sector.

In 2014 an Infrastructure Development Act (Comprehensive Growth Strategy: South Africa, 2014)

was implemented into South Africa to help manage the infrastructure in the country and help

communications between the public and private sector. It was hoped that this will help the

economy which will have a direct and positive impact on the investment levels in the country. The

act has also set out short term goals which will hopefully create a positive investment trend. The

main objective is to decrease unemployment and urge people to invest in the infrastructure which

will result in expansion within the economy.

There has been a sharp decrease in the level of gross savings from 19.1% in 1994 to 13.9% in

201. South Africa has a low level of household savings which is due to the low employment rate

as well as easier excess to creating debt. This has resulted in the wealth of households increasing

as well as lower interest rates. South Africa has a very high unemployment rate with roughly 25%

of the labour force being unemployed. “Over the medium-term expenditure framework period (3

years), the South African government has approved 43 infrastructure projects totaling R847 billion

and identified investment in infrastructure as a source of job creation” (Comprehensive Growth

Strategy: South Africa, 2014). This is a good sign for the country as more money and effort is

being placed on expansion of infrastructure which will restore investors’ confidence in the country

as well as showing an increase in the levels of investments. Almost all the money will be going

towards Eskom, Transnet and SANRAL.


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(South Africa Households Savings, 2015)

With a low level of saving comes a low level of investment which ends up resulting in a low level

of growth. There has been an overall decreasing trend in the savings of households since 2006.

During the recession household savings increased due to the levels of debt decreasing however

as soon as the recession was over households started using credit cards and taking out bank

loans. Recently households are starting to use less of their credit cards which results in an

increase of household saving from -60 000 million rand to -53 000 million rand.

The government has implemented specific strategies to help households have more money to

spend, such strategies are: new tax deduction laws, help boost savings for SA Retail bonds which

will help the general public save money as well as invest in South Africa with very little risk.

A lot of emphasis is being placed on measures to increase the level of household savings. Tax

free savings accounts are likely to be implemented in the next couple of years which will hopefully

encourage household and corporate savings.


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LABOUR FORCE PROFILE AND CHANGES OVER TIME

The South African workforce has seen a remarkable change since 1994 to be able to

accommodate 20 million people, 15 million of whom are employed (Brand South Africa). Statistics

South Africa gives figures that that show that the currents unemployment (official definition)

stands approximately at 25% and an absorption rate of 43.5%, showing that by no doubt

unemployment is still one of the biggest challenges in the country still faces, accompanied by

poverty and income inequality (Stats SA). Given the exclusion of some parts of South Africa in

the stats done in 1994, the labour force then was estimated to be 1.7 million, while the

unemployment rate was at 20% (Neiman G,2014). The increase is largely due to the effects of

the apartheid era coupled with a shortage of skilled labour in the country.

The growth of the unemployment rate in the country has been relatively steady over the years

since 1994, starting with the rate steadily increasing from 1994 and then reaching a peak in 2003.

The decrease in the rate was halted in 2008 and it began increasing again, as the country was

affected by the global economic recession, and this increase in the unemployment rate meant

that other parts of the economy were also struggling. The increase in the unemployment rate is

still present in the current year as economic growth in the country has decreased, having a hard

impact on the labour force (Brand South Africa). Even with the positive growth over the years, the

unemployment rate still increased.

According to Arora, between the periods of 1995 to 2003, an average increase of 1.5% yearly

was recorded for the unemployment rate, while a marginal increase of 4% yearly in the same

period was recorded for the labour force (Arora V, 2006). The only time an increase was recorded

in employment was between the years 2004 and 2007, where approximately 1.8 million jobs were

created (Mahadea D, 2010).

The solutions that have been earmarked to solve this persistent challenge are skills development

and education, where the government spends about 5% to 7% (The Economist, 2012) of the

national budget on education. For example, there are approximately 95000 jobs awaiting to be

filled in the field of nursing. The government is trying to provide solutions, keeping in mind that for

long term problems, no short term measures will suffice.


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EDUCATION LEVELS AND CHANGES OVER TIME

The economic landscape of South Africa has undergone major transitions since its first

democratic elections. Various policies have been devised and implemented by the South African

government in light of tackling the injustices of the past. One of the major policies implemented

that have been succumbed to severe scrutiny and criticism are those related to the education

system in South Africa, as question were raised on the quality of grade school education and the

financial barriers that made most young South African unable to attend tertiary institutions.

In dealing with the education crisis post 1994, the South African government started three specific

interventions: curriculum reform, finance reform and the teacher rationalisation process (Jansen

J, Taylor N). Polices as such have had doubtful but reasonable success as evidence is provided

by the increasing tertiary enrolment and higher literacy and numeracy rates. A breakdown of these

indicators reveal that the Enrolment rate increased from 96.7% in 2002 to 99% in 2011 of all grade

school learners, whist enrolment in primary schools increased in 2011, where 99% of 7-13 year

children attended primary schooling. School enrolment has not only increased, the number of

young pupils who complete their primary education has also increased from 93.4% in 2002 to

96.1% in 2011.

However, even though the literacy rates have increased since 1994, the completion of secondary

schooling rates shows the opposite. A survey by the General household shows that only 43.9%

of learners have complete grade school education in 2011, and out of those 43.9% only 20%

enrolled in to higher education schooling. Despite a rise in the National Senior certificate pass

rate from 60.6% to 73.9% 2009 to 2012 respectively, only a mere 26.6% were eligible to enrolled

for a bachelor degree programme at tertiary level. The pass rate figures have been rising, however

the pass average calls for concern on the level of education offered by the education system. This

is made evident by the constant changing of the education system in grade schooling over the

years and a declining number of those who enroll for learning areas like mathematics and physical

science in secondary education, as well programs related to those learning areas in tertiary

education.

The effects of such figures go beyond than just pass average figures in secondary education, this

raises many questions on the future quality of the labour market, the human capital skill level and

the ability to produce high value products in South Africa.


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DIVERSE OTHER INDICATORS OF DEVELOPMENT OVER TIME

According to a survey done by Stats SA the main indicators for South Africa: Employment, poverty

and inequality, Education, Environmental indicators, Health, Human settlement, Social

development, Transport and Water and sanitation. The development of the country over time

should be indicated by theses specific indicators. For overall development there should be a

sizable increase in these areas over time.

Employment

Employment has risen sharply since 1994 however there was a decline in the employment rate

during the world recession. The rate of employment has only managed to recover a few years

down the line. The sector that has provided the most jobs has the formal sector excluding

agriculture. The unemployment rate since 1994 has remained fairly constant with not much

deviation, some might say that it is a good thing however for a developing country it shows that

there are not many opportunities within the country and this could cause problems in the future.

In 1995 28% of households and 48% of the population were living below the estimated poverty

line, (Presidency) since then per capita income has increased at a steady rate but most of the

income is still goes to a very small percentage of the population. The living standards has

improved since 1994 with almost the entire population has access to free running water (95% of

households) as well as free electricity (80% of households).

Inequality and redistribution of income

BBBEE has helped the country transform and will promote fair playing field for those work seekers

in the future. Furthermore the government has assisted the residents of South Africa with grants

and social benefits in the aims to improve the income inequality situation in South Africa. Since

2003 Social assistance grand expenditure has grown from 2.7% in 2003 to well over 4.5% of the

national budget in 2015 (Presidency)- this will reduce poverty and help South Africa develop as a

country.

The government implemented income tax on a sliding scale in the aim to decrease the level of

income inequality. This method has, however failed to help the poor of the country as the pressure


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is placed on the middle and lower income brackets; which means instead of penalising the rich-

the middle and lower income brackets are suffering the most due to lack of financial education.

With most of the land being owned by the White settlers since their arrival in 1600’s, the post-

apartheid government has tried to change the wrong doings of the past by allowing people to

claim back land. This figure has grown exponentially since 1994 and there has been more than

80 000 successful land claims with more than 500 000 hectares of land being redistributed to its

local residences.

Health Care

More improvements has been placed in the health care sector; this can be shown by an increase

in life expectancy, lower infant mortality rates as well as free health care is provided to the

“previously disadvantaged” citizens. The increasing rate in the number of those affected by

HIV/AIDS has been decreasing, with fewer people becoming infected each year it shows of basic

education is helping to educate the younger generation of the country. More and more South

Africans have the opportunity to get a proper education, which wasn’t available pre 1994. With

the younger generation being very well educated it will promote new jobs as well as economic

development. With the increase in education there has also been an increase in literacy rate of

the country.

Social Cohesion, Safety and Security

As South Africa has had a very unique past, social cohesion has to be integrated into the

framework that is used to improve the country’s economic structure. This can be done by

increasing the participation of civil-society, political as well as anti-racial organizations. With

Safety and Security being of large concern in South Africa; addressing the issue of crime in

important for the economy. This can be achieved through both the integrity and legitimacy of our

legal justice system.


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SOUTH AFRICAN DEVELOPMENT WITHIN THE REGIONAL CONTEXT

Many would argue about the current development with in South Africa but it has come a long way

in the last twenty years, from being cut off from the rest of the world to the state where it is able

to complete on a global level. The current government has various tools to extend its political foot

print within the country.

“South Africa provides a SADC-wide vision for how such transformation can take place by putting

emphasis on the development of common trade and industrial policies, including strategies to

create value chains and regional infrastructure initiatives across member state” (Hengari).

The first step in transformation is to split up the responsibilities with in the country, this is one of

the most important aspect with regards to development within South Africa. Pre 1994 the entire

country was governed by a very small group of people and now that group has become larger;

this has helped the country to create new partnerships both locally as well as internationally. Since

sanctions have been lifted South Africa has become a “gold mine” for foreign investors which just

proves how far the country has developed in the past twenty years. The government has had a

better representation with regards to race as before 1994 the “whites” controlled the entire country.


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From being cut off from the rest of the world to present South Africa has managed to have the

largest economy within Africa. (CNN, 2013). In just twenty years the country’s GDP has almost

tripled from $144 billion to $402 billion, pushing most of its population into a middle class category

where pre 1994 most of the money was controlled by only 10 percent of the population. (CNN,

2013)

The country has been transformed in such a way that it is able to provide of many more of its

citizens. With South Africa being the first African country to be part of an international banking

system (BRICS BANK) it just further shows how much the country has achieved since its freedom

in 1994, however that doesn’t mean that the country doesn’t face any issues. South Africans still

have to fight the daily struggles of inequality and unemployment.

ECONOMIC INFRASTRUCTURE WITH CONTEXT TO THE NDP

The NDP emphasizes on the following categories to further develop the economic infrastructure

of the country. These categories are: Electricity, Water, ITC and transport.

ELECTRICITY

The electricity sector in South Africa is monopolised by Eskom which is the only producer of

electricity in the country. (Inglesi, 2010, p. 50). Eskom operates most of the infrastructures which

produce and distribute electricity around the country. They supply about 95% of the country’s

electricity is supplied by Eskom while 5% is supplied by private enterprises and municipalities

(Inglesi, 2010, p. 51). Eskom uses coal as the main source of generating electricity which

accounts for 85% of the total production. Electricity is the driver of economic development in South

Africa having most industries and businesses depending on it for operation.

The National Development Plan for 2030 visualizes that South Africa’s energy sector will succor

enough investment to ensure sufficient levels of economic growth and development and that the

sector provides adequate and reliable energy services at competitive rates. Social equity should

be achieved by increased access to electricity to South African residents at more affordable prices

which will be achieved by granting subsidies for indigent households. Climate change and the


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reduction of pollution are imperative issues that will be addressed and reduced in order to achieve

environmental sustainability.

Another critical factor is that South Africa should have a sufficient supply of electricity and in liquid

fuels, to ensure that welfare, economic and transport are not disrupted. According to the National

Development Plan prices for electricity will be higher in the future but will still be competitive in

comparison with South Africa’s major trading partners and it’s expected that more than 90% of

South African residents will have access to electricity within the next 20 years. In order for this

vision to be realized the energy system of South Africa needs to be sustained by effective policies,

governance systems, institutions, regulations and competitive markets.

Electric generation

Eskom has 13 coal-fired power stations in the country most located in Mpumalanga except two

who are in Free State. All together they produce about 85% of the total electricity in the country,

then the rest is produced by other power stations (Africa, 2012, p. 60). The rest of the electricity

is contribution of hydro power stations and wind power stations. There are however companies

who generate electricity to meet their own needs and sometimes sell the excess to the national

grid. This reduces the pressure on Eskom to generate more electricity to service the country and

surroundings. Eskom does not only produce for South Africa only but for neighbouring countries

as well such as Swaziland, Lesotho etc. (Dutkiewicz, 1991, p. 04). This is a heavy burden on the

company because the quality of coal has declined while demand in South Africa has increased.

Furthermore the sustainable development initiative restricts the burning of coal forcing for more

eco-friendly generation which are very expensive.

Eskom owns the largest infrastructure of electric production, transmission and distribution

infrastructure (Africa, 2012, p. 60). There is under production of electricity at the moment in South

Africa with blackouts across the country. South Africa is looking to build new power stations to

meet the demand of the electricity. The production cost of electricity has grown astronomically

with the new techniques which has to be applied. South Africa and many countries are moving

towards eco-friendly production of electricity renewable electricity. Eskom has about 26 power

stations around the country and produce a total of more than 42 000 megawatts (lennon, 2007,

p. 1).


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Electric Transmission and Distribution

Eskom has an estimate of more than 300 000 kilometres of network infrastructure (power line)

which cuts across the country (lennon, 2007, p. 1). There is some 28 790 kilometers which

constitutes a national grid transmitting electricity across the country. The government has a

mandate to connect all South African homesteads to the electric grind and it has published an

initiative in the Reconstruction programmer known as National Electrification Programmed

(lennon, 2007, p. 2). There has been an increase in transformer capacity from 118 630 in 2007 to

130 005 in 2011 (Africa, 2012, p. 61). The main problem of electric transmission is network failure

which is caused by the theft of steel structures. Eskom distribution infrastructure trades 60% of

electricity and 40% to the national consumers. The residential sector takes up the bulk of

electricity distributed to consumers (Africa, 2012, p. 61).

Eskom retails an estimated 60% of electricity which it produce and transmits to distributors. There

are currently 184 registered municipalities and a number of registered private distributors to

general population. An estimated amount of R261billion is the estimated asset base of the

distribution industry (Africa, 2012, p. 61). The cabinet passed a president in December 2010 which

discontinued the electric distribution industry (EDI) to Regional Electricity Distributors (REDs)

(Africa, 2012, p. 61). The EDI were officially dismantled on the 31 March 2011 and RED was

implemented. Municipalities retained their constitutional directive which is the distribution of

electricity. The biggest challenge of electric distribution sector is that it has the need to reach

universal access to households (Africa, 2012, p. 61).

Challenges and opportunities

The biggest challenge that Eskom is currently facing is getting the right amount of supply needed

for continuous electricity delivery at affordable prices. Since the blackouts in 2008 much has

changed but Eskom is still not able to deliver sufficient supply of electricity and won’t be able to

until their two new power stations Medupi and Kusile are fully functioning.

As shown in the table below, the percentage change of electricity generated has declined

significantly since 2009 and keeps on declining resulting in a shortage of supply for the ever

increasing demand for electricity in South Africa. This is a big problem for the South African

economy that needs to be addressed in order to achieve sustained economic growth. (Phaahla,

2015)


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Index electricity generated and percentage change

(Base: 2010 = 100)

Year Volume Generated Percentage Change (%)

2009 96.1

2010 100.0 4.0

2011 101.1 1.1

2012 99.3 -1.8

2013 98.6 -0.7

2014 97.3 -1.4

Another big challenge that Eskom and policy makers are facing is transitioning from a coal-based

source of generating electricity to more diverse and green methods of generating electricity in

order to address challenges of climate change. The issue of climate change is one that’s been

significantly emphasised in the 20th century. Eskom currently uses a coal-based source of

generating electricity and as a result Eskom is a significant emitter of carbon dioxide which

contributes significantly to climate change. An alternative for using coal is to substitute it with gas

that will reduce the amount of carbon dioxide and greenhouse gas emissions.

Providing citizens with electricity at affordable rates has been a big concern. Electricity prices has

to be increased if Eskom is to repay their debt and fund effective operations such as expansion,

however this price increase could slow economic growth and development. Energy needs of poor

households are still not met, between a fifth and a quarter of South African citizens still don’t have

access to electricity and the poor households with access to electricity are still only able to use

small amounts due to the fact that they can’t afford to use more and need to rely on other sources

such as gasses and paraffin.

INFORMATION AND COMMUNICATION TECHNOLOGY

Countries aiming to achieve economic growth will always be faced with designing sustainable

economic policies that allocate the few resources available efficiently to ensure the wealth

generated by this resources are distributed equally in order to reduce the prevailing global

inequality that many countries face today. Technology is the driving force of economic growth


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therefore it of importance that each nation must strive to acquire their technological frontier in

order to keep up with the ever changing technological modernized world.

Investment in infrastructure is one of the government policy priorities since the dawn of democracy

in 1994 aimed to drive economic growth, therefore robust and proper resource allocation will be

required to ensure that the government doesn’t stray from achieving their mandate. Over the past

20 years South Africans infrastructure development has amounted to 5 percent of GDP making it

one of the highest proportions in the world and spend about 4.9 percent of GDP on infrastructure

between 1992 and 2012 exceeding some of the BRICKS economies(figure 1)( Mckinsey &

Company, 2015, p.46).

Despite the major financial constraint on the fiscal it is estimated that if south Africa reduces

amount of rand lost to improper economically wasteful project it can boost GDP by 260 billion

rand per year by 2030 and could save 1,4 trillion in infrastructure cost which will have a major

impact in reducing poverty and inequality as the National Development Plan aims to achieve

(Mckinsey & Company, 2015, p.59).

FIGURE 1: South Africa’s spending level on infrastructure compared to other economies

Source: Mckinsey & Company


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Information and Communication Technology impact on Economic Growth

Investment in Technology is necessary ensure economic growth therefore a proper ICT industry

is required to archive growth. focus must be placed to ensure that proper ICT systems are

developed and are adequate to ensure that is capable to allow not only the public sector to deliver

their services but it must also be able to attract the private sector. As suggested in the NDP that

with proper government regulation private sector participation has the potential to deliver low

prices, improved quality and speed of services (NDP, 2011, p.191). The internet account for more

than 70 percent of global GDP exerting strong influence on economic growth in mature

economies and over the past 15 years the internet contribution to growth has about doubled to

21 percent (figure 2) in mature countries (Mckinsey & Company,2011,p.16).

SME’s are a very important economic entities which are positively related to economic growth

and job creation, SME’s that took advantage of the internet reported revenue that is twice as large

as reported by their competition (Mckinsey & Company, 2011, p.3).Large corporations have

benefited in the way they are able to engage with their consumers and are able to reach more

consumers online with various differentiated product e.g. in the United States about 20 percent of

deals in terms of investments are internet-specific venture capital deals (Mckinsey & Company,

2011, p.9).

Challenges facing the ICT sector in RSA

Service providers are not willing to invest in areas where there is a lack of infrastructure and where

there are no guarantee that they will make reasonable returns on their investment, which has

caused a lack of investment in broad brand in wireless networks causing a digital-divide as a

result market concentration have made the cost to communicate high (DTPS, 2014, p.11).

Currently there are private sector companies that are offering a wide range of service but yet, the

gap between those who can afford high speed internet and those who connect via the mobile

connections it is increasingly wide (NDP, 2011, p.190).

The quality of south African telecommunication landscape has deteriorated due high cost and low

speed connectivity compared to other comparable countries, poor policies and regulatory

uncertainty and lack of leadership still remain barrier to achieving quality infrastructure

development and delivering high quality services especially for the poor (DA, 2013, p.5). It is

suggested that internet cost will fall by 2020 as a result of strategic investment and regulatory

guidance to match South Africa’s peers (NDP, 2011, p.195).


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Policies to promote growth in the ICT sector

The breaking down of monopolies and the promotion of competition will lead to customers

especially the poor that are best served by competitive industries (DA, 2013, p.8). the massive

infrastructure owned by Telkom will require structural separation in order to facilitate the opening

up of state owned entities to leased or rented to potential competitors (DA, 2013, p.11).The

National Development Plan also recognizes the inherent conflict of interest between the state role

as a competitive player in the market (through its enterprises, InfraCo and Sentech as well as its

majority share in Telkom) (NDP, 2011, p.193).

The positioning of the Department of Communications, the Independent Communications

Authority of South Africa (ICASA) and all other stakeholders in the ICT sector that report to the

department to align their strategies with those proposed in the integrated ICT strategies, in order

to ensure that only the best qualified administrative people are deployed to provide excellence

infrastructure development (DA, 2013, p.11).the National Development Plan also recognizes that

the promotion of market access and creation of effective institutions that ensures competition,

regulate operator behavior and address market failure should be the government priority(NDP,

2011, p.193).

The improvement of Further Education and Training (FET’s) institutions can improve the overall

employment capacity of graduates with the necessary skills required in the ICT sector, currently

the number of FET students drop out about 13-25 percent and the NDP aims to increase the

number of students that graduate at FET’s to about 75 percent in 2030 from the 40 percent

experienced in 2010 (ICT policy green paper, 2014, p.5).

TRANSPORT

“Together, we move South Africa forward!” This is the slogan that greets the user who logs onto

the home-page of the Department of Transport of South Africa website (Department of Transport,

2015). The Department of Transport claims to “move” South Africa and its economy “forward” by

way of development and maintenance of the following: public transport, rail transportation, civil

aviation, shipping, freight and motor vehicles. The real question is, however, is South Africa

indeed “moving’? And if so, is it “forward’?


20

The current state of transport in South Africa

Public Transport: Between 60% and 70% of the public workforce is currently transported by way

of taxis (Oxford, 2013). The largest part of South Africa’s commuters using public transport, does

so not by choice or as a matter of convenience, but rather as they have no other option but to

take the bus, take the taxi… take the risk. (Oxford, 2013)

Research conducted by the South African Race Relations, found that taxi deaths are three times

higher than the deaths recorded as a result of private transport. Most deaths occur as a result of

drunk driving, overcrowding, congestion and pollution (Oxford, 2013). Taxis as a mode of public

transport, although servicing more than two thirds of the general public, is currently not safe.

Regarding public transport by bus, Government, in 2007, approved the Bus Rapid Transit System

(BRT System) as an integral part of the Public Transport Strategy (South African Government,

2015). With this project, government aims to provide all city residents with an easily accessible

bus network, which will include:

- Comfortable and safe bus stations;

- Busses that are accessible to the elderly, children and passengers with special needs;

- Dedicated bus lanes;

- A service that will run for 18 hours of the day, eventually running 24 hours a day.

Progress however, is slow. Most cities are currently still within the roll-out phase of the project.

Expenditure on the BRT System amounted to R5.5 billion in the 2014 financial year, which was

mainly attributable to planning, building and operating the BRT system in 13 cities (South African

Government, 2015). The BRT Systems in the major cities of South Africa are in various stages of

completion and operation, as set out below:

Cities with operating BRT Systems: Cape Town, Durban, Johannesburg, Nelson Mandela Bay

(Port Elizabeth), Pretoria, Rustenburg (South African Government, 2015).

Cities with BRT Systems currently in construction: Buffalo City, Ekurhuleni, eThekwini, George,

Mangaung, Mbombela, Msundzi and Polokwane (South African Government, 2015).

Rail transport: The South African rail transport can be divided in passenger rail and freight rail.

PRASA, a state owned enterprise, delivers commuter rail services to all major cities in the country

and was instituted in terms of the Legal Succession to the South African Transport Services Act


21

(PRASA, 2015). This entity’s performance, together with the performance of the private-public

partnership, Gautrain, will be used to assess the efficiency of passenger rail transport. Regarding

freight rail, the performance of Transnet, a state owned entity, will be used.

Passenger Rail

PRASA currently owns 2228 km of rail, with 585 train stations nationwide. The entity owns a fleet

of 4554 train coaches and transports an average of 1082 million passengers per annum. (PRASA,

2015). The passenger rail service in South Africa is, however well developed, not safe as crime

is a common sight on coaches of Metrorail-the commuter trains used by PRASA. PRASA’s

reputation was recently further tarnished by the colloquially referred to “R600-million train-blunder”,

in which PRASA spent an exorbitant amount on trains that, allegedly, did not fit the tracks and

could thus not be introduced to South African railroads. It is for these reasons that transport by

rail isn’t always passengers’ first choice.

The introduction of the Gautrain between Pretoria and Johannesburg in 2011 effected a rise in

rail commuters, but the overall relief and impact on the transport in the South African economy

are minimal as the service only runs between Hatfield (Pretoria) an Park Station (Johannesburg)

(Gautrain Ltd., 2015).

In terms of passenger rail, the train fleet should be improved, additional security measures should

be taken and corruption be stymied.

Freight Rail

Transnet is currently in the process of implementing a “Rail Development Plan” (Gama, 2014)

which will ensure the continuation of Transnet’s service to South Africa. However, the entity faces

serious issues relating to theft of the steel tracks owned by the company, as replacement of such

tracks are expensive and may cripple the entity in implementing its plan (Roane, 2014).

It is important to note that a green paper, The National Rail Policy was presented to Parliament

in August 2015 which will, once adopted by Parliament, attempt to effect the changes needed in

rail transportation.

Civil aviation: Civil aviation in South Africa is regulated by SACAA, a state entity, partly funded by

the Department of Transport (SACAA, 2015). It is responsible for all transportation aspects

associated with civil aviation. Currently servicing various airports across the country, SACAA’s

biggest obstacles are accidents and incidents involving the aircrafts, environmental constraints

and illegal substances on board the aircrafts.


22

Since 2005, SACAA boasted a rapid decline in accidents involving aircrafts, with only 6 instances

for the year of 2015. (SACAA, 2015). The entity acknowledges that the accidents and incidents

are caused by human error (as a result of insufficient training) and lack of maintenance (SACAA,

2015).

Regarding the environment and civil aviation, airports now have to adhere to new government-

adopted policies regarding integration into the natural environment and green papers before

Parliament regarding emission gasses of aircraft. (South African Government, 2015).

Shipping: South Africa has a 3000km coastline and, along said coastline, the country boasts eight

ports and harbours which are used for commercial purposes. These ports are: Richards Bay,

Durban, East London, Ngqura, Port Elizabeth, Mossel Bay, Cape Town and Saldanha.

Imports and exports in South Africa are largely conducted by shipment of goods between South

Africa and the rest of the world. South Africa’s ports and harbours also receive and send goods

on behalf of certain countries within Southern Africa without coastlines. (Transnet National Ports

Authority, 2015)

Currently, the eight ports contribute to the economy as follows (South Africa Tourism, 2015):

Richards Bay: the handling of sea-cargo;

Durban: responsible for most imports and exports;

East London: used primarily by the fishing industry;

Ngqura: (the only port currently fully in line with environmental law requirements regarding

construction thereof, as well as its operation) serving sub-Saharan Africa in transhipment

activities;

Port Elizabeth: direct link to African countries relying on South African ports for imports and

exports;

Mossel Bay: the transport of the manufactured goods from Mossgas, as well as national and

international fishing fleets;

Cape Town: responsible for moving cargo between Europe and the West, the East and Australia

and is a tourist attraction;

Saldanha: linked to an exclusive rail designed to ship iron ore.


23

The current issues pertaining to shipping are: environmental challenges (excluding Ngqura) and

the use of the ports for the illegal trade of poached animals and animal products (Christy, 2015).

The NDP and transport

The NDP addresses the issues relating to transport by proposing the following strategies to

ensure realisation of its vision for 2030 (Luke, 2013):

Investment in the development of public transport, specifically commuter trains;

resolving the remaining issues with the BRT Systems and finishing those still in the

construction-phase;

delegating transport tasks to local government and ease the burden on the provincial

government;

creating incentives for the use of public transport such as higher toll rates on private cars

and subsidies regarding public transport;

Effect road improvement projects.

The transport objectives stated in the NDP are as follows:

‘’By 2030, investments in the transport sector will:

1. Bridge geographic distances affordably, foster reliably and safely so that all South Africans

can access previously inaccessible economic opportunities, social spaces and services.

2. Support economic development by allowing the transport of goods from points of

production to where they are consumed. This will also facilitate regional and international

trade.

3. Promote a low-carbon economy by offering transport alternatives that minimise

environmental harm (National Planning Commission, 2012).’’


24

Furthermore:

‘’The state will oversee a transport system that takes into consideration the realities of

transport in South Africa and strives to serve the interests of society.

The state will provide basic infrastructure where needed.

Where independent service providers would best meet transport needs, the government

will enable licensing within a framework of effective regulation.

The state agents responsible for transport will have the competence, information gathering

and planning facilities and the necessary leadership to achieve these goals (National

Planning Commission, 2012).’’

It is within this context that the commission broadly identifies four key policy and planning areas,

all of which are comprised of various solutions that will contribute to the improvement of their

respective areas and ultimately to the greater transport sector itself. The four broad key policy

and planning areas are:

1. Create workable urban transit solutions

2. Strengthen and optimise freight corridors

3. Provide long-distance passenger transport options

4. Rural access and mobility

Of the four broad areas, the first two are undoubtedly the most significant in terms of their potential

contribution to economic activity and development. They can further be reduced to their critical

components as follows:

1. Create workable urban transit solutions

Increase investment in public transport and resolve existing public-transport policy

issues

Devolve transport management to local government

Provide incentives for public-transport use

Renew the commuter train fleet

2. Strengthen and optimise freight corridors

Durban-Gauteng corridor

Coal-transport corridors

North-south corridor


25

With the ultimate goal of toward the long-term goals and short-term objectives stated above, the

NDP prioritizes the completion of certain objectives within four time periods: 1) 2010-2015, 2)

2016-2020, 3) 2021-2025 and 4) 2026-2030.

It is with reference to the period 2010-2015 that one can assess the progress that has been made

in implementing the actions recommended in the NDP against the current state of the transport

sector as was described in detail in the previous section, as well as identify those factors which

have hampered significant progress. The actions that were originally prioritised for completion in

the period 2010-2015 include the following:

1. Improving streamlining of assets and institutional arrangements for public transport

2. Renewing the commuter rail fleet

3. Expand capacity for mineral exports

4. Optimal utilisation of assets

5. Transport planning

WATER

Referring to the National Development Plan water provision and sanitation supply is a priority for

South African communities. The mission set out by the NDP is that by the year 2030 the

management of water and sanitation will maintain a strong economy and a healthy environment.

(Manual T. , 2011)

The key to developing the appropriate infrastructure that will supply continuous, clean and efficient

water to all urban and rural areas is the suitable balance between finding and allocating financial

resources. Water is very high in demand and the NDP aims to set water as the foundation for

many economic activities and to provide the foundation in accordance to fulfill all necessary

obligations.


26

National Waters act of 1998

The National Water Act of 1998 was implemented by the government. “The aim of water resource

management is to ensure the sustainable use of water through the protection of the quality of

water resources for the benefit of all water users” (Government S. A.)

The intention of the act is to fix the effects of apartheid and protect the water resources of the

country. The government had set out specific guidelines and activities to help carry out the aim of

the act. The act is the back bone of all infrastructure expansion related to water- it involves an in

depth plans for the expansion as well as protection of water. Due to the expansion of the usage

of water it resulted in well looked after catchment areas, financial provisions for wasting water as

well as maintaining dams and water purification plants throughout South Africa.

The National Waters Act ensures that the use of water is regulated. Water users have a statutory

obligation to register for a water license when their main objective is to use water for irrigation,

mining and industrial drives. (South African Government, 2014)

On the 22 of October 2008 a public hearing was held to evaluate the success and shortcomings

of the National Waters Act. Since the act has been in action for 10 years it was time to determine

the positive properties of the act as well as all the flaws. All stakeholders agreed that the National

Waters Act had its pitfalls and implementation was lagging in certain aspects. The act provided

guiding principles but needed more appropriate implementation. The act did improve the provision

of water but had shortcomings, for example the provision of taps and toilets.

A water research commissioner, Ms. Elman Karar, felt that the National WaterA act was well

rounded and that the act also included enough weight on economic aspects. (Parliamentary

Monitoring Group, 2008)

During the public hearing a general conclusion was made that the act should not be disregarded

and all the achievements should be embraced. We should all implement the act to its full potential

so that it could yield even greater results.

Looking back 20 years, a clear and significant transformation can be seen in terms of water

regulation. This specific act was a stepping stone in the right direction for South Africa and has

led to many other water policies and strategies that aims to improve water infrastructure and the

regulation of water usage.


27

Management as well as usage of water

South Africa falls well below the world’s average amount of rainfall, South Africa has an average

of 450mm of rain where the world’s average is 860mm. (Manual G. B., 2013). With South Africa

relying heavily on agriculture, it is essential that the little rainfall that the country receives is well

managed. The main rivers that supply most of South Africa’s water is: The Limpopo, Inkomati,

Pongola and the Orange River. Additional dams have been built around the country with the

largest dam being built in Pietermaritzburg- this will supply people in the area with an extra 126

million cubic meters of water. (Government, Issues facing South Africa, 2015)

(Government, Proportional Water Use per Main Economic Sector in South Africa)

The agriculture sector has placed a lot of stress on the countries water as it receives 60% of the

total water, but only contributes to 4% of the total GDP. (Government, Issues facing South Africa,

2015) Plans have been put in place to monitor the water usage by this sector and also research

has gone into efficient water usage in the sector. Most of the lands are sprayed with water through

sprinklers, it is a cheap measure but most of the water that gets sprayed is either evaporated or

used in the mechanics to operate the movable sprinkler system. Farmers as well as mining

companies have been encouraged to make use of bore holes that are found near their land. This

will use natural water that is not accounted for in the total consumption of water. The only issue


28

with natural water is that it is a very costly process and government is not willing to fund

development schemes based on underground water. (Government, Issues facing South Africa,

2015)

In 1994 the country was promised free running tap water by the government. This was a big

promise, however it was a necessary promise as before 1994 safe drinking water was denied to

many South African citizens. During Apartheid only 62% of the country had access to safe drinking

water, 21 years later and more than 94% of the country has access to safe drinking water. (Check,

2015) With this statement it is safe to say that the country is moving in a forward direction when

it comes to water. The task of managing the supply of safe drinking water has been handed over

to the individual Municipalities, their job is to ensure that the water is safe for drinking and that the

purification plants maintain in working order.

Other factor influencing the use of water include population growth, limited available physical

resources and stagnant economies.

The National Development Plan aims to expand current infrastructure to distribute water more

equally to different areas. One of the main constraints against implementing this objective is the

lack of maintaining the current infrastructure. Pipes and reservoirs need to be rebuild as to the

lack of maintenance – this leads to financial issues.

South African Water Schemes

A major task was supplying areas that have no water with water, thus water schemes were

created. A water scheme involves the transfer of water from the major rivers to other parts of the

country. “80% of Gauteng province’s water is imported, mostly from the Vaal River, which is

supplemented by complex transfers from the Thukela River and the Lesotho Highlands Water

Project” (Analysis, 2014)

There are existing systems in place such as the Vaal-Harts scheme. This scheme benefits all the

agricultural farms in the area, supplying over 40 000Hectars of land with water. The Free State

gets all its water from either the Vaal River, Orange River, Gariep dam or Lesotho. From the

information above one can see that these schemes are extremely complex and require pin point

planning as well as having to take environmental aspects into consideration.

New schemes are important to the improvement of the infrastructure of South Africa. The projects

that are on paper don’t just require transportation of water but they only supply the country with

electricity by the means of hydro power. New schemes are being developed and a few of the


29

major projects are: Western Aqueduct project, Northern Aqueduct Augmentation Project, Mokolo

Crocodile Augmentation Project. Some of these projects will supply mines with water as well as

electricity, reducing the burned that they place on Eskom.


30

Major Water Infrastructure Projects

Project name/

Implementing agent/

Cost

Project description Finance Status

Mokolo Crocodile water

augmentation

phase II (TCTA)

R14bn

Construct water

transfer system from

Crocodile River (west)

to Lephalale

Possible contribution

from Fiscus;

repaid through user

charges

Financing options being

explored

uMzimvubu water resources

development (Department

of Water

Affairs) R20bn

Build dam for

hydroelectricity and

agricultural irrigation

scheme

Decided after feasibility

study

Feasibility studies under way

Lesotho Highlands water

project phase

II (TCTA) R7.5bn

Generate

hydroelectric power

and develop bulk

water transfer scheme

from Lesotho to

Gauteng

Guarantee from

government; repaid

through user charges

Memorandum of agreement

ratified;

financing options under

discussion and tender for

designs under way

Vaal River eastern sub-

system

augmentation project

(TCTA) R2.7bn

Construct 120km

water supply line

from Vaal dam to

Sasol and Eskom

plants in Mpumalanga

Project financed; repaid


Project handed to Department

of Water Affairs for operation

and maintenance

Komati water scheme

augmentation

project (TCTA) R1.7bn

Construct pumping

station and two

pipelines for Duvha

and Matla power

stations



Duvha line 97% complete,

Matla 7km pipes delivered

and pump station civil works

complete. Water delivery

soon


31

(Treasury, 2015)

Mooi-Mgeni transfer

scheme phase II

(TCTA) R1.7bn

Construct dam,

associated transfer

system and refurbish

existing pumping

station and transfer

system



Dam impounding delayed,

Construction of water supply

system to start June 2013.

Water delivery milestone April

2013

Rehabilitation of dams

(Department of

Water Affairs) R2.7bn

Dam safety

rehabilitation

programme

Funded by fiscus; cost

recovery

through water tariffs

30 dams completed, 25 dams

in design and 7 dams under

construction

Sedibeng regional sanitation

scheme

(Emfuleni and Midvaal local

municipality) R5bn

Increase capacity of

wastewater

treatment system

Project financed with

fiscal

contribution

Designs for treatment plant

finalised and tenders for

construction advertised.

Tenders for Sebokeng and

Meyerton sub regions are

being adjudicated

Olifants River water

resource

development (TCTA)

R2.2bn

Construct dam and

bulk distribution

Project financed with

fiscal contribution

Dam completed and scope of

bulk distribution reduced

based on expert

recommendations


32

ASSESSMENT OF THE ECONOMIC INFRASTRUCTURE OF SOUTH AFRICA

ELECTRICITY

It’s clear that South Africa and Eskom faces an enormous electricity problems that needs to be

corrected. One of the biggest viewpoints to fixing the electricity problems is to privatise Eskom

and to open up the market to competition. This viewpoint suggests that due to the fact that Eskom

does not have any profit incentives it’s being mismanaged by the people in charge. If the market

is opened up to competition, it will force Eskom to better manage and plan their actions of

management in order to stay competitive. (UMajozi, 2015)

In order for Eskom to improve electricity distribution they will have to invest in physical as well as

human capital in the 12 largest municipal sectors and the management of the demand-side for

electricity needs to be managed more sufficiently. The increase in physical and human capital will

increase the supply of electricity where the improved demand will decrease demand which will

ultimately improve the distribution of electricity.

The need to reduce the usage of coal in the generation of energy can be accomplished through

using cleaner coal technologies to reduce the amount of emission gasses or it can be substituted

by making use of gas as an alternative to coal. There are a few possibilities of gasses that can be

used which include: off-shore natural gas, shale gas coal bed methane and imports of liquefied

natural gas that can be used for power production.

In order for Eskom to address their financial issues key changes will have to be made. These

changes includes: implementation of mechanisms to prefund capital to create an even price path

over the long term, reduced tariffs for low income groups and the introduction of a carbon tax.

Eskom’s balance sheet has to be improved and the management over Eskom’s finances has to

be properly managed.


33

INFORMATION AND COMMUNICATION TECHNOLOGY

Overall the government has dedicated all the available resources in their disposal to ensure that

they create an ICT sector that will stimulate economic growth, attract foreign direct investment

and stimulate job creation in the long term. The government is committed to ensure that it delivers

high quality infrastructure to enable the sector to be competitive with those of developing and

developed nations. The reality is the sector is still underdeveloped and characterized by high

prices, lack of competition and qualified skilled personnel. Currently government state owned

entities are underperforming and with the backlog of unfinished projects and massive strain

placed on the fiscal by socio economic development undertaken by government each year,

political objectives tend to stand in the way of economic objectives of reallocating resources in a

manner that will promote economic growth to the country. Proper, realistic and clear policies will

play a major role to ensure that government is able to ensure that the private sector and all other

relevant stake holders are on board and that they align their strategies with that of the government

to ensure that the 2030 vision is realized and ensuring that no members of society is excluded

from the wealth generated by the sector.

TRANSPORT

There is still considerable work that needs to be done in order to realise the objectives envisioned

in the NDP, it can in no way be said that implementation has failed. Despite the fact that corruption

and maladministration within key institutions, in and related to, the transportation sector continue

to hamper progress and exceed the estimated costs of various projects, the NDP has been

instrumental in forming a vision for the transportation sector in the future as well as driving

investment, skills and attention toward the realisation of that vision.


34

WATER

The success of the NDP all depends on the correct implementation and management of its

resources. One of the important factors that we should look at is what have we achieved thus far?

Infrastructure concerning water and sanitation services has been successful thus far. We have

accomplished set goals by funding almost 500 municipal projects between 1995 and 2004.

The supply of clean water to schools in rural areas has been a successful task. Around 81 schools

in the Eastern Cape during 2008/9 was supplied with functional taps and sanitation facilities,

giving children access to clean, drinkable water. (Mnukwa, 2013)

To date most of the water projects and policies have been successful, in the next 10 years the

government intends to spend a further R 30 billion in the development of water infrastructure

projects. Creating a water infrastructure orientated framework will help with the development and

maintenance of current 500 large dams and 25 inter-basin schemes that supply water.


35

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