Infrastructure in South Africa: Who is to finance and who is to pay?

Abstract

Against the backdrop of shifting views on the role of government in the provision of infrastructure, this paper distinguishes between the payment for and financing of the South African Government's infrastructure investment programme. The paper argues for a clear distinction between loan financing by the government for macroeconomic considerations and the benchmark approach to the financing of infrastructural projects. It presents a classification system that enables a systematic mapping of all prospective projects, with reference to considerations of efficiency and equity, and uses this system to question the government's financing strategy and identify alternatives. The Gautrain Rapid Rail project is used as a case study to demonstrate these alternatives.

Keywords:

• infrastructure financing
• government loans
• benefit taxation
• guarantees
• private–public partnerships
• Gautrain
• South Africa

JEL codes:

• H54
• H81
• H72

Acknowledgements

The authors would like to thank two anonymous referees and participants at the Economic Society of South Africa conference in Johannesburg, 2007 and at Stellenbosch University Seminar series for valuable comments and suggestions. Any remaining errors are the authors' alone.

Notes

¹This includes loans and guarantees by national government.

²Notation refers to Book IV, chapter 9, paragraph 51.

³See in this regard the standard fiscal literature on the incidence of intergovernmental grants (e.g. Rosen, 2005:532–6).

⁴The Develpoment Bank of South Africa (DBSA) is another important domestic source of infrastructural finance (grantor, lender, investor and underwriter of guarantees), especially for local governments (DBSA, 2007).