It is banking on infrastructure investment to drive economic growth and job creation.
Infrastructure expenditure allocations by government have been unaffected by the dispute in the government of national unity (GNU) over tax increases that led to last month’s postponement of the 2025 Budget.
An additional R46.7 billion has been allocated for critical infrastructure projects to boost estimated government expenditure by state-owned companies, other public entities, and national, provincial, and local governments on various public infrastructure projects over the next three years to R1.03 trillion. This as the state banks on infrastructure investment to boost economic growth and job creation.
Minister of Finance Enoch Godongwana said on Wednesday infrastructure is a key pillar of the government’s growth strategy.
“It is the bedrock for economic development, a key source of jobs, and an avenue to scale-up service delivery.
“This budget reflects that understanding,” he said.
Godongwana said allocations towards capital payments are the fastest-growing area of spending by economic classification, and public infrastructure spending over the next three years will amount to more than R1 trillion.
He said the spending will focus on three sectors:
- R402 billion for transport and logistics;
- R219.2 billion for energy infrastructure; and
- R156.3 billion for water and sanitation.
Godongwana said the South African National Roads Agency (Sanral) will spend R100 billion over the medium term to keep the national road network in good condition, while provincial roads departments will reseal over 16 000 lane-kilometres of roads in their areas of authority.
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He said the Passenger Rail Agency of South Africa (Prasa) is making steady progress in rebuilding infrastructure to provide affordable commuter rail services.
“To sustain this progress, we have provisionally allocated an additional R19.2 billion over the medium term for critical signalling upgrades.
“This will enable commuters from areas like Mamelodi, Kwa-Mashu, Motherwell and Khayelitsha to catch a train every 10 minutes, to get to and from work and significantly reduce the money that low-income households spend on transport,” he said.
Godongwana said the allocation will also allow Prasa to maximise the potential of the 241 new trains delivered through the rolling stock renewal programme.
However, he said despite the progress made, Prasa’s procurement system needs strengthening, and its management is already instituting relevant measures, including getting support from the National Treasury to build capacity, mitigate risks, and undertake live audits for large procurement projects.
The Budget Review said state-owned companies, public entities, and municipalities would fund 72.7%, or R748.5 billion, of total medium-term public sector capital investment from their budgets.
State-owned companies will account for more than half of this at R410.9 billion – with R215.9 billion provided by provincial departments, R200.8 billion by local government, R136.8 billion by public entities, R40.1 billion by national departments and R25 billion from public-private partnerships (PPPs).
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Vat impact
Dr Elna Moolman, Standard Bank Group head of South Africa Macroeconomic Research, told Moneyweb after the budget was postponed last month that if the then-proposed two percentage point increase in value-added tax (Vat) was reduced to one percentage point, “then the other adjustments aren’t that big”.
“But if they are not going to increase Vat at all, a lot of what was put in that budget will have to be reversed,” she said.
The review said the Budget Facility for Infrastructure (BFI) plays a central role in the capital budgeting system by recommending funding for projects that are jointly funded from other sources, including state-owned companies, municipal resources, and the private sector.
It said that for the 2025 budget cycle, the BFI has approved nine projects with a total value of R55.5 billion, of which R15.3 billion will be funded by the facility, supporting critical areas such as hospital infrastructure, transport and logistics, and water.
Godongwana said the revised PPP regulations also make provision for national departments to establish sector-specific PPP units.
He said these units will drive private sector participation (PSP), creating opportunities to optimise the balance sheets of financially distressed state-owned companies.
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Transnet
Godongwana said the Department of Transport and Transnet will engage the market on PSP projects in the following areas:
- The ore, chrome, coal and manganese lines;
- Expansion and automation of the ferrochrome and magnetite terminal at the port of Richards Bay;
- The container and automotive sectors, including the potential designation of the South African container port system as a regional trans-shipment hub for major shipping lines; and
- The establishment of an independent rolling stock leasing company.
Godongwana said should Transnet require gap funding for its PSP projects, the BFI will consider these after proper packaging and financial structuring.
Additional guarantees may also be considered to refinance the entity’s maturing debt as well as its capital investment programme.
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Energy sector
Gondongwana said the Independent Transmission Programme will be launched later this year.
A request for information for a multi-line transmission package will also be issued by the Independent Power Producers Office in July, followed by a request for proposals in November.
“These will enable the private sector to play a key role in the expansion of the transmission network.”
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Improving infrastructure financing
The review highlighted that the government is undertaking reforms to improve the efficiency of infrastructure financing and build a pipeline of blended finance projects.
It said a single structure overseen by the National Treasury will be established during 2025/26 to coordinate state participation in project preparation and planning, PPPs, funding and credit guarantees.
This will involve consolidating two units currently in the Government Technical Advisory Centre that coordinate PPPs and capital appraisals with the Infrastructure Fund in the Development Bank of Southern Africa.
The review said PPP regulations have been streamlined, reducing approval requirements for projects below R2 billion from June 2025, and a clear framework is being established to receive and process unsolicited PPP proposals or bids from the private sector.
Godongwana said government efforts to diversify the financing strategy to support infrastructure will also lead to the launch of a credit guarantee vehicle in 2026 to mobilise private sector capital by derisking projects.
He said its initial focus will be on independent transmission aimed at bridging the energy transmission deficit, but once the vehicle has demonstrated its efficacy, it will be broadened to include other sectors.
Gondongwana added that government will issue its first infrastructure bond in 2025/26 and introduce other innovative financing instruments to diversify the infrastructure funding sources.
Financial institutions, including pension funds, banks, development banks and international financial institutions, have already expressed interest in participating, he said.
This article was republished from Moneyweb. Read the original here.
