Future prosperity starts with education

Mace’s Kelvin Byres, South Africa Country Manager, shares his view about what the 2019 South African budget means for the construction sector. 

Against a backdrop of a deterioration in public finances and strengthening economic headwinds, Tito Mboweni promised to get tough on tax evasion and corruption, while driving through overdue reform of state-owned enterprises. 

Sowing seeds to support future prosperity was the objective but near-term constraints imposed by legacy issues and the precarious state of the public finances set the tone of the budget. Additional financial support to assist in the reconfiguration of Eskom means national debt is now expected to rise until 2023/24 when it is projected to hit 60% of GDP. 

These financial constraints inevitably weigh on investment and our initial analysis suggests planned spend on buildings and infrastructure through to 2020/21 is marginally lower than in the 2018 budget. In cash terms, the shortfall is around 2% but, after allowing for inflation, it is closer to 7%. An overall reduction is obviously disappointing, especially as the latest official statistics suggest the construction sector continued to contract in the first nine months of 2018, but there were some winners. 

Education was one. Over the next three years, nearly R55bn will be invested in building new schools and improving existing facilities. The schools infrastructure backlogs grant increased by over 60% to R5.7bn and will support the replacement of 147 inappropriate or unsafe schools. Higher education benefited from a 20% upswing in infrastructure grant funding. This includes R120m to complete student housing programmes at three universities: Nelson Mandela; Sefako Makgatho Health Science; and Vaal. 

Government plans to increase infrastructure delivery via a design-build-operate offer, is a positive development. Public-private partnerships have been used extensively but currently only account for a small proportion of overall infrastructure investment. If structured appropriately, this delivery model can encourage efficiency and drive value but it is not a panacea. A pragmatic approach to risk apportionment is vital.  

The introduction of a three-year Help to Buy pilot is very interesting and may prove to be a game-changer for the industry. Under this scheme, the National Housing Finance Corporation will issue subsidies linked to finance to help first-time buyers realise their home ownership aspirations. Detail is yet to be released but, if the scheme is used to support the purchase of new homes, it could provide a real boost to house building activity. R950m will be allocated during the pilot.  

Key headlines for construction: 

• Total infrastructure investment in the 2018/19 to 2020/21 period is expected to total R815bn, 2% down on last year's budget.
• Education allocations include: a R34.3bn education infrastructure grant over three years to finance the construction of new schools and maintenance of existing facilities; a R5.7bn school infrastructure backlog grant which includes money previously earmarked for transfer to the provinces; R14.7bn to support investment in university infrastructure.
• Provisional allocations include R1bn for roads maintenance and R1.2bn for SA Connect Phase 2 to roll out broadband to public buildings.
• The public transport network grant will total R354m in 2019/20, rising to R1bn in 2020/21 and R1.4bn in 2021/22 to implement phase 2A of the Cape Town integrated public transport network in the south eastern regions of the city.
• Community development expenditure on buildings and associated infrastructure is expected to grow from R186.4bn in 2018/19 to R243.7bn in 2021/22.
• Two new grants will be introduced in 2020/21 to upgrade informal settlements through partnerships between communities, provinces and municipalities.
• South African National Roads Agency received an additional R3.5bn between 2019/20 and 2021/22 for its non-toll roads portfolio, enabling 3,300km of roads to be resurfaced and 1,000km to be strengthened.
• The National Zoo is set to receive a R315m refurbishment.
• The energy-efficiency tax incentive, due to expire at the end of 2019, has been extended until the end of 2022.