South African government to invest R1 trillion on infrastructure over the next three years

Infrastructure investment received R46.7 billion in additional government funding in Wednesday's Budget, which will form part of R1.03 trillion planned to be spent over three years.

This investment aims to speed up economic growth, financial inclusion, and infrastructure development.

Finance Minister Enoch Godongwana said R402bn will be spent on transport and logistics, R219.2bn on energy infrastructure, and R156.3bn for water and sanitation.

In transport, the SA National Roads Agency will spend R100bn to keep the roads in good condition.

Big infrastructure spending plans have been a feature of the government's Budget in recent years, but delivery has fallen far short of the plans.

This has severely reduced activity levels for the engineering and construction sectors, contributing to the steady degradation and backlogs in infrastructure.

According to the Budget Review, between 2013 and 2023, public sector capital investment averaged 5.1% of GDP, while private sector investment averaged 10.9%.

The total investment of 14.9% is well below the National Development Plan target of 30%.

A government review to fast-track project planning and financial structuring is at an advanced stage.

For example, on February 7, amendments to Treasury regulations for public-private partnerships were gazetted. From June 2025, projects below the value of R2bn will no longer face onerous approval processes intended for large projects before proceeding.

State-owned enterprises continue to be the largest contributor to capital investment, with a projected spend of R410.9bn over the next three years.

Provinces are expected to spend R215.9bn on infrastructure, while municipalities are forecast to spend R200.8bn.

Public entities, or organisations financed by capital from the fiscus and state-owned companies, will spend R136.8bn, national departments will allocate R40.1bn, while the forecast for public-private partnerships is R25bn.

Of the total public sector capital investment planned over three years, 72.7% will be funded from the budgets of state-owned companies, public entities, and municipalities.

The 2025 Budget introduced a performance-based conditional grant for certain trading services entities that provide basic services, such as municipal water.

This is hoped will incentivise financial and operational reforms to improve their functioning.

Public housing built in provinces through the human settlements development grant is expected to result in a R49.2bninvestment.

Spending on economic infrastructure, mainly by state-owned enterprises, are typically used to expand power-generation capacity, upgrade and expand transport networks, and improve sanitation and water services.

Social services infrastructure accounts for 15.5% of the total, with the two largest sectors, health and education, contributing 4.4% and 5.5%, respectively.

To address the gap between available public resources and the growing infrastructure need, the government's economic recovery plan includes immediate measures to boost investor confidence and longer-term reforms that promote sustained economic growth, with higher and more effective public spending central to this plan.

In the water sector, for example, the government is prioritising 11 projects with an investment of R139.1bn, expected to create about 20 000 jobs during construction and 14 000 jobs during operation.

About 8 000 jobs have already been created.

The R42.1bn second phase of the Lesotho Highlands Water Project is expected to be completed in 2028. The Trans-Caledon Tunnel Authority, the African Development Bank, and the New Development Bank, among others, have raised about R24bn for this project.

Construction is underway for the three main projects: Polihali Dam, the transfer tunnel from Polihali to Katse Dam, and the Senqu Bridge. The project is currently 40% complete.

Also in the water sector, the second phase of the Mokolo-Crocodile River Augmentation Project has an estimated investment of R12.3bn and is expected to be completed in 2030, providing about 75 million cubic metres of water annually to surrounding communities.

At the uMkhomazi water augmentation project, to be completed by 2032, the National Treasury has approved an application for R12bn through the Budget Facility for Infrastructure.

Meanwhile, on the energy infrastructure front, the Independent Power Producer Procurement Programme has resulted in agreements for more than 8 588 megawatts (MW) of new generation capacity, totalling more than R280bn in investment. To date, 6 331 MW are in operation, and 2 257 MW are under construction, expected to become operational in 2025/26.

In transport and logistics infrastructure, 20 strategic integrated projects have been gazetted, valued at about R126bn. The South African National Roads Agency has prioritised 13 projects that would create over 10 000 jobs during construction. Five projects worth R2.5bn have been completed, while ten projects worth R36bn are under construction. The Gauteng-Eastern Cape high-capacity rail freight corridor is at the bankable feasibility study stage.

Digital infrastructure investment consists of four main projects: the Space Infrastructure Hub, the digitisation of government records, SA Connect Phase 1, and the MeerKAT and Square Kilometre Array project.

The human settlements portfolio has 17 strategic projects, including six integrated residential development programs, 9 social housing projects, and 2 high-impact private sector-led projects, all with a total investment value of R163.1bn, aiming to provide housing to 154 000 people. To date, 10 172 housing units have been completed.

In collaboration with provinces and municipalities, the Department of Human Settlements expects to deliver about 86 000 fully subsidised houses over the next three years through a R43.5bn allocation from the human settlements development grant. A further R28.4bn is being allocated to the urban settlements development grant for metropolitan municipalities to implement bulk and related infrastructure projects.

The Budget Facility for Infrastructure (BFI) has been reconfigured to run multiple bid windows. The BFI provides viability gap funding for infrastructure projects following an extensive screening process.

The Infrastructure Fund has helped finance and package 26 blended finance projects and programmes with a R101.6bn value across water, sanitation, human settlements, student accommodation, transportation, health, and municipal energy systems.

Godongwana said that to promote alternative financing arrangements for infrastructure, a credit guarantee vehicle to mobilise private sector capital by de-risking projects will be launched in 2026, initially aimed at bridging the energy transmission infrastructure deficit. The government will also issue its first infrastructure bond in 2025/26.

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