Who Owns Whom

The aviation industry in South Africa plays a pivotal role in the growth and development of the country, but faces several challenges that impedes its progress. Aging infrastructure, limited funding and mismanagement are some of the challenges facing this important sector that can foster regional growth and boost trade and tourism by connecting the country to other economies.

passenger traffic in south africa

This graph, as shown in the April 2024 WOW report on the air transport industry and aviation ground handling services in South Africa, illustrates the challenging environment, with lower passenger and freight traffic.

Some communications can skew the message and perception, as often happens with the announcement of big new investments without looking at their contribution to broader development, their status and how they have performed over time. For example, Stats SA provides gross fixed capital investment, which does provide an idea of investment in productive assets made in the country.

Capital Investment in South Africa

Investment in productive assets lays the foundation for growth. However, the investment amount does not help one determine whether it is adequate for stimulating economic growth, and for what size of economy. This requires you to relate the amount to the country’s GDP to provide a benchmark and to compare with other countries and provide policy direction.

Gross fixed capital formation south Africa 2018 to 2022
Gross fixed capital formation – South Africa compared to other groups of countries.

The table shows that South Africa’s GFCF ratio is lower than high-income and sub-Saharan economies, which hampers economic growth.

Relatively low spending on capital goods for productive and growth purposes has had a detrimental effect on South Africa’s economic performance and poses challenges going forward as it needs to catch up to equate more successful countries.

The SARB recently published a telling graph confirming the consequences of under-investing in productive capital assets, which has been the case in South Africa for an extended period.

GDP performance over the past 15 years south Africa

The country’s investment drive is laudable, but the annual amounts pledged need to be interpreted as they are not necessarily cumulative. Moneyweb reported in 2019 that 2018 pledges of R200bn had grown to R663bn in 2019. These pledges are part and parcel of the GFCF statistics as reflected in the table above which includes investments made by the private sector.

Overall, the decline in infrastructure investment that started in 2016 has not been reversed. It would be fair to conclude that the impact of the pledges is not seen in the subsequent GFCF statistics.

The World Bank statistics indicate that the current investment amounts are not sufficient to catch up with other countries, with South Africa’s GFCF/GDP sitting well below high income sub-Saharan countries.

The impact of restricted investment in key infrastructure

Available information indicates that South Africa has not been keeping up with the required level of capital investment to maintain functionality of existing infrastructure investment let alone growth.

The country is faced with aging and fast deteriorating infrastructure, potholes, non-working traffic lights, loadshedding, watershedding, port backlogs, etc. Transnet’s railway infrastructure and operations are a shadow of what they were in the past. The poor implementation of Eskom’s new power stations, coupled with malfeasance and massive cost overruns, further depleted the already constrained investments.

This means South Africa first has to invest in capital projects to restore what was there before looking at maintaining and upgrading.

Government’s role in project financing and implementation of GFCF

The government, as performing manager of capital project implementation, has been hindered by mismanagement, making it difficult for bankable projects to attract funding. South African Airways (SAA) may serve as an example. The dubious and failed protracted Takatso privatisation was preceded by an unsuccessful search for investors by RMB, with one of the main causes being that government wanted to retain control.

The WOW report on air transport and aviation ground handling services already indicated in September 2022 that the infrastructure subsector was facing challenges. This sector is dependent on well-functioning airports, aviation traffic, and aircraft maintenance contracts.

The disruption by COVID-19 and the collapse of SAA resulted in a loss of business for airports and all the peripheral businesses, from technical servicing of planes for other airlines, and catering via retail outlets in the airports to loss of skilled pilots.

The fact that foreign airlines have absorbed international traffic left in a vacuum by SAA’s decimation caused further hardship, as foreign-owned aircraft are generally no longer serviced and maintained in South Africa.

revenue passenger kilometres for south african airlines
cargo carried on South African registered carriers

In the context of the forever-growing diversion of funds for capital expenditure to salaries at all levels of government administration, there is a shortfall of funding for capital projects, and the government increasing its debt funding to borderline levels, essentially for consumption expenditure. The new government is now tasked with acting with speed to rebalance the budget by reducing the wage bill and increasing the allocation of funds to capital projects.

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