The 2025 Budget and South Africa’s infrastructure gamble: is it enough?
A step forward, but are we prioritising the right areas?
The 2025 Budget makes a much-needed investment on infrastructure, with over ZAR1 trillion set aside for roads, energy, water, and logistics. It leans heavily on public-private partnerships (PPPs) and private capital to drive economic growth. At a glance, this makes sense. South Africa needs infrastructure investment, and unlocking private sector participation is the fastest way to get there.
But when you dig deeper, the cracks start to show. The funding allocation raises concerns for us, particularly the decision to prioritise transport and energy over water and sanitation. Regulatory uncertainties around PPPs remain unresolved, and while the budget streamlines certain approval processes, there’s no clear plan to address South Africa’s chronic execution failures.
The question isn’t whether South Africa needs infrastructure investment, it’s how it avoids the same pitfalls of execution failures, corruption, and delays.
PPP reforms: A move in the right direction, but not a game changer
The introduction of new PPP regulations, set to take effect in June 2025, is an important step toward unlocking private investment. A major change is that projects under ZAR2 billion will no longer require full Treasury approval. This should, in theory, speed up the process (but then so were the fast-track procedures in the Infrastructure Development Act). The PPP Unit is also expanding its role, providing more direct planning and procurement assistance (see our article on amendments to Regulation 16).
There’s also the issue of investor confidence for several reasons. South Africa lacks PPP legislation like those in Canada, India, and the UK. Instead, PPPs are governed by Treasury regulations, which may not favour long-term investment.
Another practical failure is the lack of standardised contracts. The UK, for example, uses pre-approved templates that reduce legal delays and hasten financial close. South Africa’s current model, where most PPP contracts are based on market standards (depending on the financial institution, the sector, etc) and inappropriate standard form contracts, slows down deals and increases transaction costs.
Streamlining PPP approvals is a good step, but unless investor concerns around regulatory certainty and contract enforcement are addressed, private capital will remain hesitant.
Why we believe water should be a bigger focus
One of the biggest red flags in this budget is how infrastructure funding has been allocated. Transport and logistics receive ZAR402 billion, energy gets ZAR219.2 billion, but water and sanitation – arguably South Africa’s most pressing issue – gets just ZAR156.3 billion.
While transport and energy are critical to economic growth, water security is far more urgent with far more severe consequences for a larger part of the population. Unlike roads and (given the increased consistency of electricity production) energy, water is a basic human necessity affecting health and food security.
Yet, despite this growing crisis, water infrastructure doesn’t attract private investment like energy and transport do. Independent power producers (IPPs) and private transport concessions bring in external funding, but water infrastructure remains almost entirely reliant on public funds. Without a meaningful budget shift, the government risks failing on one of the most fundamental services it is meant to provide.
What needs to change
Shift funding from transport and energy to water and sanitation. Reallocating even 5-10% of the transport and energy budget to water projects could significantly improve infrastructure resilience without compromising other sectors.
Establish a national water infrastructure fund. India and the UK have successfully created dedicated water investment programmes that blend public and private capital. South Africa should take a similar approach.
Fast-track water infrastructure the same way energy projects were prioritised.
The current budget over-prioritises transport and energy at the expense of a looming water crisis. The creation of the South African National Water Resources Infrastructure Agency is a good step forward but, without a shift in focus, South Africa could face severe long-term consequences.
Execution risks: The weakest link in the plan
Even with the right funding and policy structures in place, South Africa has a poor track record of delivering large-scale infrastructure projects on time and within budget. Past failures, like Medupi and Kusile, show how delays, mismanagement, and budget overruns can turn even the best-planned projects into financial liabilities.
Municipal infrastructure is another concern. Even if water projects receive more funding, local governments often lack the capacity to execute them effectively. Simply allocating money won’t fix the underlying governance issues.
Funding: Still the burning issue
The planning around the 2025 Budget has been unprecedented, with the budget speech initially cancelled due to lack of consultation.
It’s clear from the initially proposed 2% increase to the VAT rate, and the subsequent 1% increase spread over two years, that the government is under extreme fiscal pressure. There are too many large, capital-intensive projects touted almost in the face of the stark reality that our national debt is almost out of control, and the economy is in something of a torpor.
The only real fix available is to stimulate growth in the economy and that means developing coherent and implementable foreign policy philosophies and spending priorities.
We are of the view that the PPP projects are critical to growing the economy and attracting foreign investment. Of course, as was discussed, funds may have to be diverted from other projects that are potentially more appealing to the electorate. Hard choices as ever, but perhaps with fatal outcomes if not carefully made.
What needs to happen
Incorporate water oversight into Minister Kgosientsho Ramokgopa’s responsibilities. The lessons learnt on energy will serve us well for water. This is not an uncritical endorsement but, in our view, building on something improves the time and cost learnings.
Tie municipal infrastructure funding to performance benchmarks. Instead of simply allocating budgets, municipalities should have to meet operational and financial performance targets before receiving additional funds.
Introduce a use-it-or-lose-it policy for infrastructure budgets. If municipalities fail to roll out projects within a set timeframe, unspent funds should be reallocated to regions with better execution capacity.
No amount of funding or policy reform will matter if projects don’t get built. Without strict oversight and a stronger focus on delivery, South Africa risks repeating the same infrastructure failures of the past.
The 2025 Budget is a step in the right direction, but it is only the first step.
Authors: Nikita Lalla, Ricardo Pillay, and Andrew Wellsted