Siseko Maposa
I recently attended the Sustainable Infrastructure Development Symposium South Africa (Sidssa) in Cape Town hosted by Infrastructure South Africa, where key role-players in the infrastructure investment sector met for a three-day conference to discuss means to accelerate infrastructure development.
Over the past few years, strides have been made with regards to establishing initiatives aimed at driving increased investments into the sector.
Given the dilapidated state of much of our critical public infrastructure, there is a growing sense of urgency in the government’s approach. This has driven the state to employ creative solutions to financing, such as arranging new financial instruments, blended financing approaches, and renewed efforts at public-private partnerships.
These efforts are focused on increasing private sector investment confidence in South Africa’s infrastructure pipeline.
However, there are several blind spots in the government’s approach.
At the conference, many of the discussions regarding challenges of South Africa’s infrastructure and construction industry read as mere regurgitations of well-known concerns. Poor project preparation, ageing infrastructure, supply side inefficiencies, limited funding resources, inefficient governance, lack of transparency, growing corruption, construction mafias, poor skills and negative effects of climate change on infrastructure were just some of the identified challenges.
Still, innovative solutions to sufficiently attend to these concerns and answer important questions regarding what and how we ought to build remain limited. This, in my view, is indicative of the fact that financing for innovation is not prioritised.
Innovation is central in supporting the generation of critical growth properties. Supporting innovation capacitation requires public and private sector players to bolster and fund research and development (R&D) initiatives.
There is strong academic consensus regarding the positive outcomes increased R&D expenditure has on infrastructural development. These relate to improved project conceptualisation, development, implementation and management, the creation of new cost-efficient materials for construction and engineering projects, identification of technological improvements in construction processes, and development of methods, tools and equipment that improve efficiency.
Regrettably, South Africa continues to exhibit low levels of financing for R&D. According to the World Bank, between 1997 and 2020 South Africa’s expenditure in R&D declined from 0.7% of GDP to 0.6%. In contrast, the global average for R&D spend is 2.7%. Given the size of South Africa’s economy, a feasible R&D spend ought to be 1–1.5% of GDP.
Low levels of R&D investments in South Africa signal a missed opportunity for innovation capacitation in the infrastructure sector. The positive impacts of R&D expenditure on infrastructure development are well documented. In China for example, (which spent 2.3% of its GDP on R&D in 2020), as early as 2000, government-initiated R&D subsidies for corporate companies led to the promotion of technological upgrading, capital deepening, and economic growth in the infrastructure industry.
R&D through universities, research institutes and national laboratories have become part of China’s national programmes to develop the sector.
In another example, a 2018 study of government R&D spending, predominantly in the form of cash grants and tax deduction on construction firms initiating R&D programmes in Central and Eastern European countries from 1995 – 2016 revealed that government R&D expenditure is a key driver for improved economic performance.
One must commend the Development Bank of Southern Africa for recently launching the DBSA African Journal of Infrastructure Development.
According to the DBSA, the journal will be open-sourced and enable “the DBSA to co-ordinate latest thinking in development finance and infrastructure development as well as the envisaged development impact”.
Such initiatives are imperative in efforts to generate innovative capacity in the sector.
Improvements in finance for innovation will support South Africa’s need for future-proofing infrastructure to generate climate resilience. Currently, South Africa’s critical infrastructure (water, bridges, roads, rail) shows low levels of climate resilience, with many parts of the country’s infrastructure highly susceptible to failure in the instance of natural disasters.
In recent years, the costs of rebuilding damaged infrastructure have run into the billions. This is indicative of the fact that South Africa needs more R&D in innovative future-proofing solutions.
Financing for innovation can also drive sectoral development through the generation of destructive technologies that increase competitiveness and force companies to improve the way they do things.
This is important for South Africa, particularly considering the current state of companies working within the sector. SMME’s across the entire value chain conduct a large majority of the activities in South Africa’s built environment and generate up to 80% of jobs in the sector.
Regrettably, these same companies, when compared to their international counterparts, are falling behind in terms of technological advancements and efficiency.
If South Africa hopes to improve the performance of its infrastructure and construction sector, more effort must be directed at increasing financing for innovation. The government and the private sector ought to prioritise financing R&D initiatives to generate the necessary innovative capacities needed in driving improved efficiency, productivity, competitiveness, and growth.
* Maposa is the director of Surgetower Associates, a management consultancy specialising in corporate, government and foreign affairs. He writes in his personal capacity.
Cape Times