Infrastructure development in South Africa

South Africa is on a multibillion-rand development drive to remedy the skewed implementation of infrastructure during the apartheid years, and to meet the demands of a growing economy and population.

Power lines outside Beaufort West in the Western Cape. (Image: Chris Kirchoff, Brand South Africa, For more free photos, visit the image library)

The country is also preparing to host the 2010 Fifa Football World Cup, for which the government is investing heavily in building or upgrading 10 world-class stadiums, and on the energy, transport and telecoms infrastructure needed for this massive event.

Sections in this article:

  • Funding
  • Energy
  • Transport
  • Telecommunications
  • Water
  • Useful links

Funding

Infrastructure funding is largely provided by South Africa’s national government. Parastatal companies also undertake infrastructure development in some sectors, while other initiatives include the government’s Expanded Public Works Programme, and public-private partnerships.

The government has courted foreign direct investment to lure investors into areas that need infrastructure, and foreign companies often build, own and operate facilities. The government has introduced a policy of broad-based black economic empowerment (BBBEE), which requires foreign companies to go into partnership with local businesses, shifting company ownership patterns.

In 2006 parastatals such as the power utility Eskom and transport group Transnet were earmarked to receive 40% of the R372-billion the government set aside for infrastructure development. Eskom is to spend R84-billion, mostly on energy generation, transmission and distribution. Transnet is to spend R47-billion, with R40-billion of this going to harbours, ports, railways and a petroleum pipeline.

The Airports Company of South Africa (Acsa) will spend R5.2-billion on airport improvement and the Dube Trade Port, while R19.7-billion will go to water infrastructure.

In 2006, South Africa’s Public Investment Commission (PIC) announced plans to create a continent-wide, 25-year equity fund to mobilise local and international investment for infrastructure development in Africa. PIC includes the Government Employees Pension Fund and has around R600-billion in assets under management, making this the largest fund-management initiative in the country.

PIC will spend around R1-billion on property development – mostly in shopping centres in South Africa’s townships and rural areas – over the next three years. Its “Project Rural” will merge its Community Property Fund with Government Employees Pension Fund retail.

The government’s budgeting of a massive R372-billion for upgrading and building new infrastructure over the next three years is set to be a powerful growth driver for South Africa’s construction industry, and its infrastructure spending plans are attracting growing interest from the investment community.

In 2006, three construction-related companies on AltX were listed in the space of a month, and the share prices and capitalisation of these companies climbed rapidly. Launched in October 2003 as a parallel market to the JSE, AltX is aimed at fast-growing businesses, start-ups, family-owned businesses, black economic empowerment companies and junior mining companies.

Given the backlog in the province of Limpopo, the government plans to spend over R3.6-billion on upgrading and providing new infrastructure. Over R1-billion has been budgeted for rural electrification, and in addition R600-million has been allocated for municipal support, township establishments and site demarcation.

Energy

South Africa Mpumalanga, 2008: Kendal Power Station. (Image: Graeme Williams. Brand South Africa. For more free photos, visit the image library)

South Africa’s economy is booming, with the GDP growth rate hitting 4.9% in 2004, 5.1% in 2005, and 5% in 2006. This growth, together with rapid industrialisation and a mass electrification programme that has brought power deep into the rural areas, means increased demand for energy, and an overworked electricity infrastructure. It is anticipated that generation capacity will peak by 2011.

In 2007 the National Energy Regulator of South Africa (Nersa) released the findings of an audit into 11 major electricity distributors in the country; this recommended that the government spend more than R400-million on refurbishing of infrastructure. The energy regulator was forced to intervene following a spate of power outages across the country in 2005, blamed mainly on the poor state of the country’s electricity distribution infrastructure.

South Africa is to spend R97-billion to increase the capacity of its electricity grid over the next five years. Eskom is committed to spending R97-billion over the same period on building new coal-fired power stations and reopening mothballed ones. The private sector is expected to invest a further R23-billion in increasing capacity in the same period.

Earlier in 2007, Eskom received a licence to build the first new coal-fired power station in the country for more than 20 years, with a R66-billion project in Limpopo.

In addition, consortium led by US power producer AES will build, own and operate two new open-cycle gas turbine peaking-power plants, representing an investment of over R5-billion during the construction phase, a significant portion of which will be foreign direct investment.

In August 2005, five consortiums qualified to bid for the right to build, own and operate two new power stations in the Eastern Cape and KwaZulu-Natal. The plants are expected to cost R6-billion to build and to be fully operational by the end of 2008.

New markets

In the past five years, the electricity market has been deregulated to make way for regional electricity distributors (REDs) and independent power producers (IPPs), limiting Eskom’s monopoly.

REDs will be run by Eskom and local authorities, which will buy electricity from power generators at wholesale prices determined by Nersa. Plans are to set up six REDs across the country, combining the distribution function Eskom with that of 187 municipalities already distributing electricity in the country.

Coal and carbon

Coal accounts for 75% of primary energy consumption in South Africa. Most of this is used to generate electricity, while a significant amount is channelled to synthetic fuel and petrochemical operations. Due to its dependence on coal-fired electricity, South Africa is among the top 15 emitters of greenhouse gases in the world. As the country is a signatory to the Kyoto Protocol, there is a commitment to reducing its emissions. To this end Eskom is diversifying its energy sources, in conjunction with other parastatals such as the Central Energy Fund.

Fuel

The current energy crunch will also be alleviated with a US$600-million (about R4-billion) diesel and petrol pipeline linking the Mozambican capital, Maputo, with South Africa. Operated by the firm Petroline, which is controlled by a South African-Mozambican consortium, the pipeline is expected to be in operation by the end of 2009.

Nuclear power

South Africa serves on the board of governors of the International Atomic Energy Agency. The government has identified uranium as a strategic mineral, and will be developing a uranium mining and beneficiation strategy.

A nuclear centre is planned with the Department of Science and Technology helping establish a national Nuclear Manufacturing Centre (NNMC). The Nuclear Energy Corporation of South Africa will provide R10-million a year for the next three years to establish the NNMC.

Peaking power

The Coega Industrial Development Zone has been identified as one of two sites for constructing a peaking power plant. The Department of Mineral Resources aims to procure about 1 000 megawatts of new peaking generation capacity for 2009 and 2010.

Transport

A minibus taxi rank in Johannesburg. In order to get rid of unsafe taxis on the roads, the Department of Transport is implementing its R7.7-billion taxi recapitalisation programme. (Image: Chris Kirchhoff, Brand South Africa. For more free photos, visit the image library)

The government will be spending some R9-billion on upgrading the transport system ahead of the 2010 World Cup. The funds are to be divided among South Africa’s nine World Cup host cities as follows:

  • Bloemfontein: R298-million
  • Cape Town: R766-million
  • Durban: R851-million
  • Johannesburg: R1 320-million
  • Nelspruit: R212-million
  • Polokwane: R179-million
  • Port Elizabeth: R520-million
  • Pretoria: 694-million
  • Rustenburg: R69-million

In addition, the Department of Transport is to spend R2.3-billion on the country’s bus system, including the creation of a bus rapid transit system. Money is also being channelled into the South African National Roads Agency (R430-million), the South African Rail and Commuter Corporation (R1 316-million) and the Cross Border Road Transport Agency (R1-million). The department is also to spend some R65-million on monitoring and evaluation specialists.

Transnet is to invest R78-billion on revitalising the country’s railroads, ports and pipelines. The company’s strategy is to dispose of its non-core assets, and use the proceeds of their sale in developing its infrastructure. About R20-billion of these funds is to be spent on pipelines, ports and rail infrastructure for the KwaZulu-Natal-Gauteng corridor.

Taxis

In order to get rid of unsafe taxis on the roads, the Department of Transport is implementing its R7.7-billion taxi recapitalisation programme, with 20 000 old vehicles targeted for scrapping in 2007, and over 7 000 old taxis scrapped to date.

The government aims to have replaced up to 80% of the country’s taxi fleet by 2010. Owners who want to exit the industry or buy new vehicles are offered R50 000 for each unroadworthy minibus taxi that they send in for scrapping by accredited agencies. New government regulations demand that minibus taxis be fitted with seatbelts for each passenger, have rollover bars, a type-two braking system and commercially rated tyres of sizes 185R or 195R. Some R353.5-million has been paid out in scrapping allowances, allowing taxi owners to revamp their ageing fleets with newer, safer vehicles.

A draft plan to reform the country’s current bus subsidy system to include minibus taxis has been approved in principle by stakeholders in the transport industry.

Air travel

In 2002 the semi-privatised Airports Company of South Africa (Acsa) was formed to upgrade standards at the country’s airports and improve productivity. Its capital expenditure to this end was R800-million in 2003, and a total of R2.6-billion by the end of 2004.

In preparation for the demands of the 2010 World Cup, Acsa has allocated R5.2-billion to an infrastructure expansion programme for the three main airports at Johannesburg, Cape Town and Durban International, as well as at seven smaller airports.

In 2006, OR Tambo International Airport announced that R3.4-billion would be spent on upgrading security and facilities by 2010, and another R8-billion on building a new terminal, to be completed by 2012.

The upgrades will also ready the airport for both handling the giant Airbus A380 and accommodating the Gautrain rapid rail link. A new R8-billion terminal will be built, as well as a R1.8-billion central terminal building. A further R218-million will be spent on nine new aircraft stands, and a R512-million “international pier” development will allow for a substantial increase in the number of passengers boarding and disembarking via air bridges. About R81-million will also be spent on expanding the international departures concourse, and a second multi-storey parkade is being built. Security at the airport has already been improved with the construction of a 25 kilometre perimeter wall and strengthened access control at the gates, costing R52.5-million.

At Cape Town International Airport, Acsa plans to spend R900-million on a new central terminal building as well as building a R160-million multi-storey parkade with 2 500 parking bays, to add to the R100-million, 2 000-bay parkade recently completed.

Durban International has begun construction of a R90-million, 1 500-bay multi-storey parkade, and plans are in place to expand the airport’s existing terminal. In 2007 construction began on a new airport north of the city, the King Shaka International Airport, which will be managed by Dube Tradeport. The airport is due to be completed in 2009, at an estimated cost of R2-billion.

In 2006 the Eastern Cape Transport Department unveiled the Blue Skyway Aviation Strategy, in an effort to maximise the potential of the Bhisho and Mthatha airports in the Eastern Cape. In 2007, Bhisho airport underwent a R100-million upgrade, making it suitable for international flights.

The South African Police Service Air Wing will relocate to the Bhisho Airport, while the Port Alfred-based 43 Air School has declared its intent to expand to the airport and has started assisting in recommissioning refuelling facilities.

Air BP has also started refurbishing the fuel depot at own cost. A new R5-million fire tender was brought in from overseas, with a view to increasing the emergency capacity of the airport and improve its grades from two to four.

The Limpopo government will spend R76-million on upgrading the international airport in Polokwane and domestic airports in Giyani and Thohoyandou. In 2006, R13-million was spent to improve navigational aid and R10-million on the construction of part of the terminal building. In 2007, R28-million was set aside for the completion of the terminal building, R31-million for the construction of infrastructure at the cargo hub and R17-million for the development of Aero City, which includes parking, feeder roads and ring roads around the terminal building.

Ports

The National Ports Authority (NPA), a division of Transnet, controls seven of the 16 biggest ports in the region. In 2006, the NPA finished building the Ngqura Port, a multi-user deepwater port on the Coega River outside Port Elizabeth. It is South Africa’s eighth and latest commercial port development.

Rail

South Africa’s rail network is controlled by Transnet Freight Rail, a division of Transnet, and the South African Rail Commuter Corporation (SARCC). SARCC currently has an initiative to provide a safe and efficient service for commuters, while reducing traffic on the roads, and has set aside over R16-billion over three years to improve its services, R7-billion of which is earmarked for upgrading coaches.

Johannesburg’s Soweto Business Express was launched in 2007 in order to cut down commuting times between Soweto and the city centre, offering additional amenities to lure travellers away from the roads. It operates during peak hours only, travelling between Naledi in Soweto and Johannesburg Park Station in less than 45 minutes.

Further plans include the multi-billion rand Gautrain high-speed rail link between Johannesburg, Pretoria and the OR Tambo International Airport; the Moloto Rail corridor linking Gauteng and Mpumalanga, and the Klipfontein corridor in Cape Town.

There are also plans for improving passenger rail and road transport, including creating a bus rapid transit system in all metropolitan municipalities, and recapitalising Metrorail.

Transnet is conducting a feasibility study on building a railroad ring around greater Johannesburg, in an effort to reduce delays and boost rail freight capacity.

Road

Government projects to maintain new and existing roads, as well as the construction of several new toll road developments, are under way, under the South African National Roads Agency.

Telecommunications

Telkom’s massive telecoms tower, the Hillbrow Tower, dominates the Johannesburg skyline and has become the symbol of the city. (Image: Chris Kirchhoff, Brand South Africa. For more free photos, visit the image library.)

National operator Telkom has met and exceeded its roll-out targets of over 1.6-million lines along the country’s large transmission infrastructure, necessitated by the country’s vast geographical area, and covering about 156-million circuit-kilometres. Digital microwave and optical fibre serve as the main transmission media.

Although Telkom’s monopoly has expired, its right to provide basic services has simply been extended to include the second network operator, Neotel, and, in some cases, signal carrier Sentech.

Mobile communications operators Virgin Mobile, Vodacom, MTN and Cell C, contribute to making the country the fourth-fastest growing cellphone market in the world, a market that is expanding at a rate of 50% a year.

In September 2007, MTN announced plans to build a 5000km fibre-optic network covering the country’s major centres within the next two years in order to cope with the increasing demand for bandwidth from its customers. This national backbone could cost up to R1.3-billion, depending on possible joint ventures or partnerships.

Neotel

Neotel, the second landline operator, will land a private-equity funded fibre optic submarine cable locally that will connect south and east Africa to Europe and India by early 2009. Neotel’s network rollout involved an R11-billion capital expenditure plan as the company develops its network and services.

Neotel has agreed to a partnership with private submarine cable operator Seacom to land the SEA cable system in South Africa, to cater for growing local bandwidth demand. The system has a design capability of 1.28 terabits, in order to cope with expected demand in 2010 and beyond.

At the same time, Neotel states it is committed to its participation in the East Africa Submarine System (EASSy), while the company also announced that it would partner with Infraco to build a second submarine fibre optic cable along Africa’s west coast.

Infraco

InfraCo Africa  is a new state-owned company, formed in 2007 to provide long-distance connectivity to the country’s telecommunications market on a cost basis. It will not be a full-fledged telecommunications company itself, but will act as a provider of broadband capacity through fibre-optic cables to other operators in the country.

Sentech

The role of state-owned signals provider Sentech will be to provide internet connectivity through wireless systems rather than fibre-optic cables. Sentech will also focus on delivering connectivity to the government and wider public sector.

EASSy

East Africa Submarine System (EASSy), a 9900km-long optical submarine cable between Durban and Port Sudan, will slash telecommunications costs in Africa, and is scheduled for completion by the end of 2008. The network will deliver a regional capacity of 320 Gigabits per second, and it is expected to cost some US$240-million (about R1.6-billion).

Alcatel-Lucent, a Paris and New York-listed network solutions provider, will lay the optical cables for EASSy in 2007. EASSy will link up with terrestrial fibre-optic cables to make up what will be known as the Nepad ICT Broadband Network, which aims to free the continent from its dependence on expensive satellite systems to carry voice and data traffic.

City broadband plans

The metropolitan municipalities of Cape Town, Tshwane (Pretoria), eThekwini (Durban) and Johannesburg plan to have their own broadband networks to provide their residents with cheaper voice and data services.

Johannesburg has invited companies to bid for a R500-million public-private project to build its own broadband network and the city will invest about R100-million in the project, with the private sector asked to finance the remaining R400-million. The city expects the private partners to make money from the project through selling its spare capacity to businesses and consumers, and possibly also charging the municipality to use the network.

Call centres

South Africa is to build a R125-million, 1500-seat call centre to boost the global competitiveness of the Coega Industrial Development Zone outside Port Elizabeth – the Business Process Outsourcing (BPO) Park.

Water

Dams

Dam wall of the Blyde river dam- Hoedspruit Limpopo province South Africa. (Image: Chris Kirchoff, Brand South Africa. For more free photos, visit the Image Library)

Water from the Berg Water Project near Franschhoek will flow through Cape Town’s taps in 2007, 18 years after the project was first mooted. The project yield is an 18% increase in the yield of the Western Cape water system, with a gross storage capacity of 130-million cubic metres. In today’s terms, the project will cost between R1.4-billion and R1.5-billion.

The Cabinet has approved the establishment of the National Water Resource Infrastructure Agency (NWRIA) by April 2008 to ensure long-term water security. The agency will take responsibility for developing and operating the major national dams and water transfer schemes that are currently managed by the Department of Water and Sanitation.

The agency will also integrate the Trans-Caledon Tunnel Authority (TCTA), the parastatal organisation responsible for funding the Lesotho Highlands Water Project. The TCTA has already been tasked to finance and implement projects such as the Berg Water Project in the Western Cape and a new R2-billion pipeline from Vaal Dam to assure supplies to Eskom and Sasol.

Several dams being commissioned or completed around the country, will ensure bulk availability of water, and there is a bulk supply upgrade planned for linking Polokwane and Flag Boshielo Dam.

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