South Africa has 26 megaprojects planned, including a new R5 billion smart city and a major push towards renewable energy

Nedbank has released its revised Capital Expenditure Project Listing for 2022, which details the major capital projects presently ongoing in South Africa.

According to the bank, fixed investment activity in the nation would moderate in 2022 as significant local and domestic headwinds unsettle and erode company confidence.

The value of new projects announced this year was R248.5 billion, down from R392.7 billion in 2021. The private sector remained the primary engine of investment, with R193.6 billion in proposed new projects, accounting for 78% of the total value of new projects announced in 2022.

Capital projects by the government and public enterprises were down from 2021. However, over the last two years, these institutions have launched several initiatives, mostly integrated strategic projects as part of the economic recovery strategy.

According to Nedbank, capital investment will decelerate in 2023. Downward pressure on investment will be primarily imposed by the impact of electricity shortages, which, in combination with reduced global and local demand, softening commodity prices, poor progress on structural reforms, and chronic policy uncertainty, will continue to harm investor morale.

According to Nedbank, load shedding and the protracted power crises have drained investor confidence and affected desire for capital projects dramatically.

The majority of the major projects were announced in the first part of the year, before near-permanent load shedding became a regular occurrence in South Africa.

The energy industry, predictably, became one of the largest providers of projects, accounting for the majority of announcements.

This comprises the R75 billion Green hydrogen plant in the Coega Special Economic Zone, the R34.3 billion and R12.1 billion 5th and 6th phases of the Renewable Energy Independent Power Producer Procurement Programme (REIPPPP), and the R12 billion Seriti coal mine windfarm project.

Excluding those megaprojects, overall project announcements were roughly R60 billion, indicating a reluctance among firms to commit to major capital expenditures in light of low business confidence, according to Nedbank.

The RMB/BER business confidence index remained below the key 50 mark throughout 2022, averaging 41.25 for the year and falling short of the previous year’s average of 42.75.

“Already depressed business confidence was worsened by intense load-shedding as Eskom struggled to sustain power supply and a deterioration in global growth prospects. The impact of the Russian war on Ukraine continued to manifest through higher commodity prices and a surge in inflation, which forced central banks to aggressively tighten monetary policies.

“At the same time, demand from China, one of our key export destinations, was contained by its zero-Covid-19 policy for most of the year. These undermined activity in some of the export-orientated industries. On the other hand, high global commodity prices, amplified by the Russian/Ukraine conflict, encouraged some mining companies to expand operations,” Nedbank said.

Following the presentation of the Strategic Integrated Projects two years ago, the number of government projects has also decreased. The value of government projects dropped from R33.8 billion in 2021 to R20 billion in 2022.

The largest project is a 524,000 square metre (sqm) mixed-use government district in Salvokop, Pretoria, valued R18 billion. According to Nedbank, waste and water treatment projects in several provinces represented the majority of medium-sized government projects.

Forecast for 2023

While capital project expenditure is anticipated to drop further in 2023, underlying investment activity is beginning to recover from the collapse created by the stringent lockdowns of 2020, according to the banking group.

“Even though private firms became more hesitant as load-shedding intensified and tighter financial conditions dimmed domestic and global growth prospects, investment by the private sector nonetheless grew by 7.1% over the first three quarters of last year,” Nedbank said.

“This, coupled with a modest increase in capital outlays by public corporations, outweighed the decline in capital expenditure by the general government.”

According to Nedbank’s analysis, the recovery in fixed investment is failing to gain traction due to a tough climate, which is driving some organisations, notably in the private sector, to be hesitant to engage in large-scale capital projects.

“Companies in some industries also have sufficient capacity and therefore have little need to expand operations until demand improves substantially,” it said.

Furthermore, disagreements within the government about how to stabilise the energy supply in the face of harmful vested interests and rampant crime are unlikely to inspire trust and may persuade many private enterprises to postpone or cancel their development plans.

“We are likely to see some acceleration in fixed investment activity in the renewable energy sector, while companies will probably continue to invest in automation and digitisation. Although capital outlays by the public sector will remain patchy, Nedbank’s listing suggests some improvement in infrastructure investment as government slowly presses ahead with its strategic projects.”

The table below summarises the 26 megaprojects announced in 2022, as well as the projected completion dates.