South Africa

Infrastructure Report
Compiled by:

Swiss Business Hub South Africa

Pretoria, February 2009

Abstact It is undoubtedly true that South Africas infrastructure, in terms of rail and road transport, has deteriorated over the last ten years. This is essentially due to short sightedness and a lack of investment both pre- and post-apartheid. However the transport sector is increasingly being seen as a key contributor to South Africas competitiveness in Global markets and a crucial engine for economic and social development. This and the imminent FIFA World Cup 2010 has led to a wake up call in Government which is now investing heavily in infrastructure

Overview South Africa has a reasonably modern and well developed transport infrastructure which has declined somewhat over the last 10 years mainly due to a lack of investment and a skills shortage in the country. The road system is, however, extensive and in relatively good condition. The air and rail networks are the largest on the continent and the countrys ports provide a natural stopover for shipping to and from Europe, the Americas, Asia, Australasia and both coasts of Africa. The FIFA 2010 World Cup has provided an incentive and a ZAR 9 billion investment into improving infrastructure in the nine host cities in order to cope with the expected massive influx of visitors. This means major upgrades to the countrys airports and improvements to the general transport system, including the taxi recapitalisation programme, consolidation of passenger rail and a transformation of the bus industry. Ports The ports of southern Africa play an important role in the economies of each country and those of neighbouring landlocked members of the Southern Africa Development Community (SADC). Approximately 95 percent of all trade to the region passes through these ports and those of East Africa, providing a vital link in the logistic chain of southern Africa.

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Transnet, a state owned company, manages the ports in South Africa which are: Richards Bay and Durban in KwaZulu-Natal, East London and Port Elizabeth in the Eastern Cape, Mossel Bay, Cape Town and Saldanha in the Western Cape. These ports service the approximately 96% of the countrys exports that are conveyed by sea. This amounts to some 183 million tons of cargo (2007). Durban is Africas busiest port and the largest container terminal in southern Africa and Richards Bay is the largest bulk coal terminal. An eighth commercial port, Ngqura, is under construction off the coast from Port Elizabeth and should be ready in June 2009. This will be the deepest container terminal in Africa. Transnet, after successfully negotiating a turnaround strategy, has recently set forward a four point growth strategy and plan to invest R80 billion on revitalizing and extending their infrastructure over the next five years. www.transnet.co.za www.ports.co.za

Roads The intercity road network comprises about 55,000 kilometers (km) of paved roads; 2,500 km of which meet freeway standards. A further 126,000 km of gravel roads are available. Roads not included in these figures are the lower-order rural roads and the majority of urban roads. 2 400km are toll roads. Maintenance is the responsibility of the South Afrian National Roads Agency and the local governments of the nine provinces. However, South Africa's road infrastructure has
come about because of under funding of road maintenance, overloading of heavy vehicles, and increased volumes of road freight vehicles. A recent Automobile Association report stated that 70% of South Africa's roads were in need of urgent repairs that would cost R 65-billion. Overloading was said to be costing South Africa ZAR 650-million a year in destruction to roads. Public transport in SA is inadequate and in need of overhauling and development. There are approximately 3,9 million public transport commuters. The 2,5 million taxi commuters account for over 63 percent of public transport work trips, bus services account for another 22 percent of public transport commuters and the balance are carried to work by train. In addition to the 2,5 million commuters who use minibus-taxis as the main mode of travel, there are another 325 000 commuters who use taxis as a feeder mode to other public transport services. 30 per cent of households in the RSA spend more than 10 per cent of their income on public transport. In an attempt to alleviate some of the problems, particularly with a view to 2010, The Integrated Transport Plan for host cities' Cape Town, Tshwane, Durban, and Bloemfontein among several others will include a Bus Rapid Transit system which will promote the use of public transport ahead of the 2010 soccer spectacle. It involves the construction of "bus way corridors" on segregated lanes and modernised technology.

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Phase 1A of the BRT System in Johannsburg is expected to be completed by May 2009. This will include a 40km route through Johannesburg's city centre, 20 state-of-the art bus stations, 143 new buses, and a smart card system for commuters Phase 1B will add another 86 km and 102 stations to the system ahead of the 2010 soccer World Cup. Unfortunately there is a lot of resistance form the taxi companies and most of the cities involved have faced demonstrations against the BRT introduction. Government proposals are to spend: R1,6 billion being spent on the capital expenditure (CAPEX) projects for 2010 R200 million on Intelligent Transport Systems R700 million on new and improved bus and taxi infrastructure R144 million on new intermodal interchanges and facilities R109 million on Non-motorised Transport Infrastructure Projects

The National Roads Association www.nra.co.za www.aboutus.org/Public_Transport_and_Road_Safety_in_South_Africa www.sa2010.gov.za Railways South Africas extensive rail network is the 10th longest in the world. The main heavy hauler is state-owned Transnet and the companys network connects the ports with the rest of southern Africa. Only half of the nation's 20,000 kilometres (12,000 mi) of track is being fully utilized, and some 35% of the nation's track carries no activity or very low activity. Accordingly, Transnet is moving towards an emphasis on freight, rather than passengers, to keep the rail system profitable. Although as the majority of SAs lines are narrow gauge (1,067 mm), there are some limitations on heavy freight transport. The Government has promised to invest ZAR 19.5 billion a year over the next four years on upgrading its ports and rail infrastructure. The Gautrain, an 80km rapid rail link will connect Johannesburg, Pretoria and OR Tambo International Airport. The rail lines will be constructed on standard gauge (1,435 mm) due to the increased speed of the trains. The ZAR 25 billion project is a public-private partnership between the Gauteng provincial government and Bombela, a Canadian-French consortium. The first phase of the construction between the airport , Sandton and Midrand is expected to be completed in time for the 2010 FIFA World Cup, the second phase should be finished by 2011. Railroad Association of South Africa www.rra.co.za South African rail Commuter Corporation www.sarcc.co.za Bombela Concession Company www.bombela.com

Air travel South Africa has ten principal airports of which three are major international airports situated in Johannesburg, Durban and Cape Town. The semi-privatised Airports Company South Africa (ACSA) is responsible for overseeing the infrastructure expansion. In 2007 a five-year capital expenditure programme was instituted of ZAR 20 billion for this purpose. Cape Town and Johannesburg airports have already been extensively refurbished and expanded to cope with the expected rush in 2010. There are around 230 000 aircraft landings per year which carry about 33 million passengers. The top 6 source markets for arrivals were the UK, USA, Germany, Netherlands and France with Zimbabwe coming in seventh followed by Zambia and Italy.

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Airports Company South Africa www.acsa.co.za South African Airways www.flysaa.com Energy infrastructure Energy contributes about 15% of South Africas GDP, however the countrys strong economic growth, rapid industrialisation, a mass electrification programme and a distinct lack of investment led to demand for power outstripping supply in 2008. This resulted in load shedding (a euphemism for power outages) over much of the country. The power supply crisis has accelerated recognition of the need to diversify the energy mix, such as nuclear power and natural gas, as well as various forms of renewable energy. As a result a projected ZAR 343 billion over five years has been made available to fund new power stations. Eskom has started work on two new coal-fired stations (to come on line in 2013) and was considering bids for a conventional nuclear power station which has now been shelved due to lack of finance. The revised projection for nuclear increase is that the next plants will come on line in 2019, and 6000 MWe might be operating by 2025. Development of the Pebble Bed Modular Reactor (PBMR) technology for power plants, scheduled for commercial use by 2014, has similarly been hit by the current global financial crisis. There are also plans to reopen three power stations that were mothballed in the 1990s, build two opencycle gas turbines that will produce power by the end of 2009 and complete a hydro scheme in the Drakensberg mountains of KwaZulu-Natal. Additionally there is a move to promote alternative sources of power such as solar and wind energy. Despite South Africas abundance of sunny weather the former has not as of yet really taken off and there are some concerns that SA is not an ideal land for wind generators. As can be seen from the above the majority of SAs electricity is produced from coal, the major indigenous source of energy and is consequently a significant emitter of greenhouse gases. South Africa is, however, a signatory to the UN Framework Convention on Climate Change and the Kyoto Protocol and is committed to reducing coals current 88% share to 78% by 2012 and to 70% by 2025. Energy Overview Proven Oil Reserves (January 1, 2008E) Oil Production (2007E) Oil Consumption (2007E) Crude Oil Refining Capacity (2008E)

15 million barrels 199 thousand barrels per day, of which 8% was crude oil. 505 thousand barrels per day 485 thousand barrels per calendar day 318 billion cubic feet

Natural Gas Production (2006E) Natural Gas Consumption (2006E) Recoverable Coal Reserves (2007E)

102 billion cubic feet 109 billion cubic feet 54 billion short tons

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Coal Production (2007E) Coal Consumption (2007E) Electricity Installed Capacity (2005E) Electricity Production (2005E) Electricity Consumption (2005E) Total Energy Consumption (2005E) Total Per Capita Energy Consumption (2005E) Energy Intensity (2005E)

283 million short tons 203 million short tons 40 gigawatts 228 billion kilowatt hours 211 billion kilowatt hours 5.0 quadrillion Btus*, of which Coal (75.4%), Oil (20.1%), Nuclear (2.8%), Natural Gas (1.6%), Hydroelectricity (0.1%), Other Renewables (0%) 114 million Btus 10,006 Btu per $2000-PPP**

www.eia.doe.gov/cabs/safrica.html www.southafrica.info/business/economy/infrastructure/energy.htm Department of Minerals and Energy: www.dme.gov.za

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Synthetic fuels, Oil and Gas SA has a highly developed synthetic fuels industry, in which state owned PetroSA and the petrochemicals giant SASOL are the major players. PetroSA manages the commercial assets in the petroleum industry, including the largest commercial gas-to-liquids plant at Mossel Bay in the Western Cape. SASOL, the biggest local company listed on the Johannesburg Stock Exchange, produces synthetic fuels from low-grade coal and a small amount from natural gas. It produces 36% of the liquid fuels consumed in SA.

The coal-mining industry is highly concentrated, with six companies, Anglo Coal, BHP Billiton, Sasol Mining, Eyesizwe Coal, Kumba Coal, and Xstrata Coal accounting for 90 percent of coal production. Production and consumption of coal in South Africa have grown steadily over the past two and a half decades, at an average annual rate of 2.7 percent. In 2007, about 125 million tons or 64 percent was burned by Eskom in its power stations, with Sasol consuming another 47 million tons and industry and small consumers accounting for the remainder. South Africa is an export led economy, and the depreciation in the price of commodities due to global demand that has shrunk to very low levels have resulted in some significant job losses. So far about 14,000 mining jobs are on the line, South Africa's Chamber of Mines has said, but analysts say more than 40,000 or 8 percent of the workers in a sector that employs close to half a million people are likely to lose their jobs. www.mineweb.com www.sasol.com www.petrosa.co.za

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Information & Communication Technology (ICT) Industry The South African ICT market is the largest in Africa and contributes about 6.4% to GDP. The Telkom long time monopoly has now been challenged by a Second Network Operator (SNO)
cell / fixed line telephones

cell fixed

called Neotel, which was awarded a fixed network licence in 2006. The GSM cell phone market has three operators: Vodacom, MTN and Cell-C. There are currently about 18.7 million cell phone subscribers versus 4.8 million fixed line users. The African mobile phone sector is forecast to grow at a rate of 20% in 2009.

This is slower than the 25% expected for last year and well off its impressive growth rate of 70% in 2005. Revenues are expected to fall as increasingly more subscribers are connected due to increased competition. Internet usage: South Africa YEAR Users 2000 2,400,000 2001 2,750,000 2002 3,100,000 2003 3,283,000 2004 3,523,000 2005 3,600,000 2008 4,590,000 Source: www.internetworldstats.com Population 43,690,000 44,409,700 45,129,400 45,919,200 47,556,900 48,861,805 43,786,115 % Pen. 5.5 % 6.2 % 6.8 % 7.1 % 7.4 % 7.4 % 10.5 % Usage Source ITU IWS ITU Wide World Worx Wide World Worx Wide World Worx W.W.W

A significant retarding factor has been the high cost of bandwidth in Africa. However, the Government has committed to addressing this, and major projects are under way to lay submarine fibre-optic cables along both the east and west coasts of Africa to boost the continent's connection with the rest of the world. Satellite communication connectivity is also forecast to have healthy growth. Yet analysts report that the ICT industry may suffer in 2009 due to a skills shortage predicted to be as large as 25%. This is attributed in part to the fact that domestic supply is far below demand. Deep skills are even scarcer than entry level skills. Gautteng Economic Development Agency: www.geda.co.za www.informationindustry.org.za www.southafrica.info/business/economy/sectors/icte-overview.htm

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Future investment In the recent budget speech of Finance Minister, Trevor Manuel, it was announced that Government will be spending some ZAR 787 billion on public infrastructure over the next three years which will push South Africas budget deficit to 3.8 per cent of GDP in 2009. Mr Manuel said that due to the decreased demand for South African commodities and lower output, coupled with decreased domestic growth meant that it was necessary for the Government to borrow more funds in order to finance planned public infrastructure projects. However, he maintained that debt service costs should remain moderate at about 2.5% over the next three ears.

Of the budgeted ZAR 787 billion, ZAR 390 billion will be spent on state-owned enterprises. ZAR 25 billion will go to the Rail Commuter Corporation to invest in new trains and new routes. The Bus Rapid Transit system will receive ZAR 12 billion over the next three years and ZAR 1.6 billion to South African Airways to support its turnaround strategy. Summary As can be surmised from the current investment into infrastructure the South African Government is heavily committed to improving and developing the situation as it currently exists. There are many opportunities here for enterprising companies to move into the South African market in any of the infrastructure sectors and the financing is available. This is particularly true of areas that involve a high level of technology and/or know-how. This situation is likely to continue as Government attempts to dampen the affects of the global financial crisis by providing access to jobs in infrastructure by increasing public expenditure in that sector. The situation was emphasised with the announcement (24.02.2009) that SAs economy had contracted by 1.8% in the fourth quarter of last year, mainly due to a significant drop in production as the global financial crisis hit exports. However, the bad news was offset by the construction figurers which rose by 10,18% and has been supported by state infrastructure plans.

Date: Author: Authors Address: Physical address:

Pretoria February 2009 Jonathan Lincoln Trade Officer Embassy of Switzerland, Pretoria, South Africa 225 Veale Street, New Muckleneuk 0075 Pretoria South Africa PO Box 2508, Brooklyn Square 0075 Pretoria Tel: +27 12 452-06 60 / 452-06 90 Fax: +27 12 346-26 21 E-mail: pre.sbhsa@eda.admin.ch www.eda.admin.ch/pretoria www.osec.ch/sbhsa

Postal address:

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