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NEWS: Coastal wetlands are unable to adapt to the rate of sea-level rise and are constrained by infrastructure

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Wetlands, precious ecosystems that shield coastlines, safeguard drinking water from saltwater contamination, and nourish diverse wildlife, face a dire threat from the accelerating pace of sea-level rise, driven by global warming. Wetlands have historically adapted to rising sea levels by expanding upward and inland. However, predictions indicate that the waterline will soon shift far too rapidly for wetlands to keep pace. Consequently, future decades may witness the tragic loss of these vital wetland ecosystems. Wetlands along coastlines have historically played valuable roles for people and wildlife, but are now facing the threat of sea-level rise. As temperatures rise, sea levels are rising at an accelerating rate, and wetlands are unable to keep pace by building upward and migrating inland. This is due to human-induced climate change and the burning of fossil fuels, which has warmed the oceans and melted glaciers. Sea levels are now rising at about 10 millimeters per year, and are
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NEWS: State infrastructure spend will not achieve economic growth

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Infrastructure-led investments means the government spends irrespective of economic realities. The results are rising government debt and an increased role in the economy, with no apparent positive growth results

Is there any rational argument for government infrastructure investment under the pretext of promoting economic growth and development?

SA, and for that matter the world, has a near dogmatic faith in infrastructure investment as the holy grail for economic growth and development. Infrastructure investment drives development aid institutions and development banks across the world. Since the New Deal after the Great Depression (1929-1933), all interventionist-inclined policies and economies believed that government spending is key to economic growth.


Not only Roosevelt in the US and Stalin in the USSR relied on large-scale public works programmes — SA also had its fair share of such programmes in the 1930s. This theme was maintained through the apartheid years. Unsurprisingly, this approach was adopted for implementation with a renewed vigour after 1994. It was the basis of the Reconstruction and Development Plan and has featured strongly in all government policies ever since.

However, the emphasis on infrastructure investment programmes by the government, since the adoption of the National Development Plan 2012, has reached rhetorical levels exceeding other popular political promises. We pin our hopes on capital expenditure frameworks, capital investment plans, municipal infrastructure investment plans, built environment performance plans, and the list goes on. However, we have remained in economic decline for two decades.

When ignoring that we adopted an approach in which a plan is a solution to our problems, that corruption is crippling the country, and that institutional capacity is at low levels, the question remains whether infrastructure spending by the government should be part of the solution for renewed economic growth.

Infrastructure is part of the capital stock in the economy. Capital stock — in accounting terms property, plant and equipment — represents the asset base of the country that produces goods and services. The value of goods and services produced is measured as the GDP, or if taxes and transfers in the economy are excluded it is expressed as gross value added (GVA). The hypothesis is therefore straightforward: growing the capital stock or asset base will lead to the production of more goods and services and so economic growth.

The relationship between the asset base and the production of goods and services in the economy assumes a sector’s contribution to economic growth is proportionate to its asset base. This brings us to fixed capital investment, which is an investment to grow the capital stock and hence the economy. However, any investment requires returns for the investor; therefore, for every rand used to increase capital stock one would expect a positive impact on GDP or GVA.

The impact of infrastructure investment can be measured through an investment ratio that relates the proportion of capital stock in a sector to the proportionate contribution of the sector to GVA. If this ratio is greater than one, it implies that expanding capital stock in a sector contributes to economic growth; if it is smaller than one, it implies that capital investment in the sector is a drain on the economy.

The private sector component of the economy has shown a continual declining investment ratio since 2000. The strong correlation in this decline with nominal GVA growth is clear, and is indicative of how the private sector responds to market signals. Notably, the ability of the private sector to contribute to economic growth through its available capital stock is falling. While the investment return ratio is still positive, the impact of the government interventions in the Covid-19 environment in 2020 might change this picture drastically.

Government investment ratios, and hence the impact of infrastructure-led investment, have two important features. First, the ratios are anti-cyclical and show the opposite trend to that of the private sector. This implies there is no clear economic rationale for government investment, and as the economy contracts, the government continues its spending irrespective of economic realities.

The results are rising government debt and an increased role in the economy, with no apparent positive growth results. This is clear in the trends after 2008, which corresponds to the strong rise in government debt as a percentage of GDP and related sociopolitical challenges.

The second aspect is that though the local government sector shows signs of possible positive economic returns on infrastructure investment, this is not the case with the central and provincial governments. That the provincial and central governments’ fixed capital investment does not yield positive returns for economic growth and might be viewed as a drain on the economy.

As the trend in the local government sector shows the closer the investment decisions are to the intended beneficiaries, the better the chances for a positive impact on the economy. The continual trend of centralisation on the pretext of a lack of capacity in local government does not bode well for the anticipated district development model as an economic growth catalyst.

The private sector is undoubtedly the driver of economic development. Furthermore, the private sector remains sensitive and responsive to market signals. It is a matter of investors having confidence in economic prospects, and the factors determining confidence lie in the political climate in the country rather than in the economy itself. Big international investor conferences are good PR — but promises of investment will remain just that if the underlying investment prospects and climate do not change.

The crux of the matter is that in 2019 every rand of capital stock in the private sector yielded R1.09 (R1.15 in 1993) in GVA, while a rand of government capital stock yielded only 63c (51c in 1993) in GVA. There seems to be no rational argument for government infrastructure investment under the pretext of promoting economic growth and development. If the government needs to invest for sociopolitical reasons, so be it, but it cannot be packaged and sold as promoting economic growth.

This opinion was written for the Business Day by Burgert Gildenhuys

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