The Death Spiral of Infrastructure Under-investment. Article one: South Africa on the brink

This series of two articles provides a frank status quo of South Africa’s infrastructure under-investment challenges and a roadmap for possible rescue. Its purpose is to stimulate thinking on root causes and solutions, as well as a case study for other countries on how to avoid the spiral, or perhaps to plot their own roadmap of recovery.

This first article describes how South Africa is on the brink of no return down a spiral of infrastructure degradation, in part due to under-investment.

The second article will address how South Africa can claw its way out.

The death spiral

Underinvestment in infrastructure constrains growth in Gross Domestic Product (GDP). In turn, lower GDP leaves less funding available for new infrastructure and even less to address the backlog created by past underinvestment. This constraint even further erodes the required future investment. And so on.

South Africa has been trapped in this spiral for a decade but is perhaps now clawing its way out. How can the country fix it? Will it be too little, too late? The next five years will tell.

Infrastructure under-investment constrains GDP growth

Investment in infrastructure is usually expressed in terms of Gross Fixed Capital Formation (GFCF). This represents the money spent on infrastructure, land improvements, buildings and machinery.

It also serves as a vital component of calculating GDP, as well as a dipstick measure of future economic growth. GFCF investment also predicts a country’s productive capacity and signals private sector confidence.

For purposes of expediency of this article, infrastructure capital investment will be assumed as GFCF.

Infrastructure investment creates immediate obvious benefits: more construction jobs, stronger short-term demand for suppliers and materials, and growth in related downstream industries. Over the long term, investment also supports sustained GDP growth, creates an enabling environment to build wealth through infrastructure, encourages innovation and attracts foreign investment.

Strong infrastructure investment encourages the private sector to invest in long-term fixed assets, expecting long-term demand. Conversely, reduced infrastructure investment exposes fragility in a country since the private sector fears a recession and therefore could freeze major projects.

Quantifying the exact stimulus effect of increased infrastructure investment on GDP is complex. Economists often utilise the Economic Multiplier to calculate it, where it is commonly regarded that a 1% increase in GFCF generates a 0.2% to 0.4 % increase in overall GDP growth in developing countries . This means that for every $100 invested in infrastructure, an additional $20 to $40 is generated in total economic activity. In developed countries the stimulus can be as high as $50 to $150 per $100 invested .

It is important to note, however, that increased capital investment is by no means the only driver of GDP growth. Other factors such as consumer spending, net exports and political and macroeconomic stability play significant roles.

The strong symbiotic relationship between infrastructure investment and GDP growth is best viewed when correlating the two indicators over a statistically significant time span. The graphic below demonstrates this correlation across South Africa over the past twenty years.

The graphic illustrates that the GDP growth trend (the blue line) closely follows the infrastructure investment trend (the orange line). Similar strong correlations can be seen across Africa, and even more so in developed regions such as Western Europe.

How much should countries invest in capital infrastructure

Developing nations should target a GFCF rate of 30% to 35% of total budget, whereas developed nations ideally target 20% to 24% to maintain stable economic health. The global structural average typically hovers around 26% infrastructure investment of total budget.

An investment rate in Africa of around 26% is within reach for Egypt, Nigeria and Morocco, as demonstrated below. Africa’s Middle Eastern neighbors of Saudi Arabia and the UAE comfortably exceed this target at 31 % and 34% respectively.

Significantly, South Africa has only invested 10% of budget over the past five years. This is only marginally higher than Burundi, the second poorest country in the world.

Where South Africa fell into the death spiral

South Africa fell into the downward spiral in three areas:

Investment has declined

Firstly, South Africa’s gross investment in infrastructure has steadily declined, as illustrated in the graphic above, and is less than half of the global recommended benchmark.

To further illustrate the decline over time, the GFCF as a percentage of overall budget has dropped from a high of 15% in 2017, rapidly declining to a low point of 9.0% in 2020, and more or less staying at 11% ever since, as illustrated below.

South Africa’s infrastructure investment rapidly decreased to 9% of total budget by 2020 and has more less stayed static since then. Again, this is well below the global benchmark of 26%.

Capital budget leakage

Secondly, not only has the gross investment decreased, but even this has been eroded by budget leakage. This means that the under-investment is exacerbated even before it reaches the bricks and mortar level.

This leakage of budget occurs in four layers as follows.

1. Layer 1: Fiscal diversion – portions of the capital budget are shifted (explicitly or implicitly) to other areas, such as operating expenses.

2. Layer 2: Allocation and planning inefficiency – the budget exists but is poorly structured.

3. Layer 3: Execution failure - funds are not spent or projects are delayed (procurement delays, contractor failure, socio-political interference).

4. Layer 4: Delivery loss – cost overruns, over pricing and poor quality of construction.

The percentage of budget lost to leakage in South Africa typically varies across the three spheres of government as follows :

1. National government – 25%

2. Provincial government – 35%

3. Local government – 50%.

Local government is therefore by far the largest contributor to leakage, where half of the capital allocated is lost before it reaches the ground level. Capital budget is chronically eroded in water systems, sanitation, local roads and electricity distribution.

The reasons are varied and complex but are generally ascribed to the fact that governance oversight at local level is reduced, Municipalities often have a lower level of skills since they cannot attract sufficiently competent staff, procurement failures and supply chain challenges.

The following graphic illustrates the leakage in each layer per sphere of government.

The evidence above suggests that infrastructure failures in South Africa are not necessarily attributable only to the lack of capital budget, but also to the inefficiencies of planning and implementation of the budget.

Since a significant portion of allocated budget is leaked (25% at national, 35% at Provincial and 50% at local sphere), the root causes of infrastructure decay cannot merely be solved by adding more budget. Other systemic root causes of inefficiencies need to be equally addressed.

Staff complements do not adjust to declining budget

Thirdly, despite the decrease in infrastructure spending and the leakage of budget, the public sector wage bill has not decreased accordingly. Quite to the contrary. The public sector wage bill has increased by 51% over the nine years ending 2024, whilst the average infrastructure spend has decreased over the same period.

This means that over the nine years ending 2024 there were 51% more public funds spent on wages to oversee less infrastructure delivery.

Consequences of the under-investment in infrastructure

The consequences of the infrastructure under-investment have been highly visible in the decline of the condition of infrastructure, service delivery and the resultant citizen frustrations.

The deteriorating condition of infrastructure

The first consequence of infrastructure under-investment is the decay of current infrastructure and decline in service delivery.

The South African Institute of Civil Engineers (SAICE) produce an intermittent Report Card on the condition of infrastructure. The latest results (2022) show South Africa’s infrastructure at a level “D” as follows:

This rating is defined as infrastructure not coping with normal demand and is poorly maintained. It is likely that the public will be subjected to severe inconvenience and even danger without prompt action .

While the current condition is bad enough, a deeper insight shows that the condition of infrastructure has been below acceptable condition for more than a decade. The effect of this is that, while engineering infrastructure deteriorates initially at a constant rate, at a mid-point in its asset life cycle the asset value rapidly starts deteriorating if maintenance and rehabilitation has not kept up with the rate of decay. The rate of deterioration rapidly declines with time.

A significant proportion of local government infrastructure is already in this state, and to some extent provincial infrastructure, and to a lesser extent national infrastructure.

This implies that, even if adequate infrastructure investment were to be rapidly deployed, the already poor condition of assets in the “D” category above will necessitate significant rehabilitation, or even complete reconstruction in some cases. Given the fact that insufficient budget has been made available thus far to merely keep up with current demand, it is highly unlikely that additional budget would be available for the exponential demand to rehabilitate decayed infrastructure, besides the demand to budget for future growth.

This means that it may now be practically impossible to restore much of the country’s current infrastructure to an acceptable state, let alone construct new infrastructure to cope with future growth.

Much of the infrastructure in South Africa is therefore beyond the tipping point of recovery, especially in Municipalities.

The state is now faced with difficult prioritization choices to salvage key infrastructure, such as national energy generation and water resource protection, potentially at the cost of abandoning other less critical local infrastructure.

Almost certainly the largest effect will be felt at rural local government level where the distribution of water, wastewater, electricity and roads infrastructure will continue to rapidly decay.

Citizen frustrations and social unrest

The second consequence of infrastructure under-investment and resultant infrastructure decay is the rising citizen frustration and social unrest.

A reasonable proxy to measure service delivery dissatisfaction is to track logged service delivery calls in Johannesburg, the largest and wealthiest city in South Africa.

The data below show a dramatic increase of 83% of calls logged in the past five years

Not all of these calls can be ascribed only to infrastructure issues, since many of the other Municipal services such as billing, licensing and planning controls have equally deteriorated.

Nevertheless, an analysis of the calls received individually by each of the largest utilities, namely Joburg Water, Johannesburg Roads Agency and City Power all show a rapid increase in recent years.

The graphic below shows Johannesburg Water with a 100% increase in calls since 2020, Johannesburg Roads Agency with a 167% increase from 2020 to 2022 and City Power with a 150% increase from 2020 to 2022.

The three largest infrastructure utilities in Johannesburg showed an average of 139% increase in service delivery calls from 2020.

Mapping these service delivery calls against national service delivery protests across the country reflects a similar growing frustration among amongst citizens.

The graphic below shows a similar dramatic increase in national service delivery protest of 67% over the past five years.

Again, not all of the service delivery protests can necessarily be ascribed to infrastructure issues.

Nevertheless, it is reasonable to assume that the deterioration of the condition of infrastructure correlates to citizen frustration as manifested in social protests.

What does this all mean

South Africa has under-invested in infrastructure over the past decade with resultant devasting decay and delivery of infrastructure.

The under-investment is not only due to the direct reduction of infrastructure funding but is also due to even further erosion in investment in budget leakage.

This has been further exacerbated by public sector inefficiencies, amongst others due to an increasing wage cost relative to the value of infrastructure delivery. More officials are overseeing less delivery.

This has resulted in the following downward spiraling consequences:

1. The under-investment has constrained GDP growth and therefore the economy has suffered.

2. The condition of engineering infrastructure has deteriorated to a level of risking failure.

3. The ongoing deteriorating asset condition has moved beyond the point of no return of rehabilitating large portions of infrastructure at the local government level.

4. Citizen frustration has now set in, as manifested in social protests.

Can South Africa claw its way out of this infrastructure under-investment death spiral

Current indications are tentatively positive. For example:

1. National Treasury has begun to draw a hard line with underperforming local authorities by withholding some of their equitable budget share as a means of sanction in July 2026.

2. Citizen frustration has stirred democratic forces to challenge the political status quo. The local government elections in November 2026 will be a crossroads for testing South Africa’s Government to improve delivery.

3. Pockets of improved service delivery have begun to emerge, especially in the Western Cape province.

4. The private sector is playing an increasing role in the delivery of infrastructure services.

The road map for South Africa to claw its way out of the death spiral is complex. Tough choices will need to be made in the public and private sectors to address the systemic challenges.

Article two in this series will propose some solutions.

Top Photo: Aerial view capturing a bustling highway intersection in Sandton, Gauteng with flowing traffic (© K / Pexels)