International Benchmarking of South Africa’s Infrastructure Performance

1. International Benchmarking of South Africa’s Infrastructure Performance Zeljko Bogetic & Johann Fedderke Infrastructure and Growth Workshop Economic Research South Africa May 29-31, 2006 Cape Town, South Africa

2. Outline • Why Benchmark Infrastructure Performance? • Infrastructure Benchmarking Database (Estache et al., WB 2005) • First Benchmarking Applications: South Africa (Bogetic & Fedderke 2005, 2006a), Lesotho (Bogetic 2006), SACU (Bogetic 2006) • Energy • Telecom • Water and Sanitation • Transport • Large Deviations from the Benchmarks • The Rural-Urban Divide • Conclusion and Policy Implications • Possible Extensions

3. Why Benchmark Infrastructure Performance? • Strong Association Between Infrastructure and real output (as well as child health, human capital accumulation and MGDs) • Evidence from South Africa • Decline in Inf. Invest. in South Africa • The Quest for Accelerated and Shared Growth in South Africa—ASGI-SA • The Need to Identify Sectoral and Comparative Gaps in Infrastructure Performance

4. Figure 1: Inrastructure Accumulation and Growth (1960-97 country averages, percent) 6% G 4% 2% 0% Others -2% lac y = 0.4224x + 0.0007 2 eap7 R = 0.3487 -4% -2% 0% 2% 4% 6% 8% 10% 12% Growth in infrastructure stocks per worker International Evidence: Infrastructure and Growth

5. Evidence from South Africa • Aggregate time series growth model (Fedderke, Perkins, Luiz, 2005): • Output elasticity w.r.t. electricity: • 0.1 – 0.2 range under robustness checks • 0.5 once control for institutions (Property Rights)

6. Real GDP and public-sector economic infrastructural investment (gross) and fixed capital stock (indices, all measured per capita) 260 220 180 Index (1960 = 100) (all values per capita) 140 100 60 1960 1970 1980 1990 2000 Infrastructural investment Infrastructural fixed capital stock GDP DECLINE IN INFRASTRUCTURE INVESTMENTS IN SOUTH AFRICA

7. The Quest for Accelerated and Shared Growth • Accelerated and Shared Growth Strategy (ASGISA) • Scaling up infrastructure—key element of ASGISA • Massive scale up plans underway • R372-billion (about US$60 billion, or 24% of 2005 dollar GDP) spending plan over the next three years (from the central and local governments and state enterprises combined). • Of which: • 50% by the central, provincial and local governments • 40% by state enterprises (ESKOM, Transnet, 2010 World Cup) • 3-5% by development financial institutions (largely domestic, state owned) • 5% is to be financed by Public Private Partnerships (PPP). • South African economy accelerated to robust 5% growth in 2005, from the 3% average of the past decade • => Question of infrastructure requirements of accelerated growth (Bogetic & Fedderke 2006 “Forecasting Investment Needs in SA’s Electricity and Telecommunications Sectors” WB WPS 3929 (February)

8. Infrastructure Benchmarking Database • International research database (Eustache & Goicoehea, World Bank, 2005) • Coverage: 207 countries • Sectors: Power, Water & Sanitation, Telecom, Transport • Performance dimensions: Access, Pricing/Affordability, Technical and Perceived Quality • Indicators: Energy (7), W & S (4), Telecom (14), Transport (12); some indicators available for rural and urban areas. • Comparators: Upper Middle-Income Group (Main benchmark for South Africa), other income groups, OECD, Sub-Saharan Africa, Latin America & the Caribbean, South Asia, East Asia & Pacific, Middle East & North Africa

9. BENCHMARKING SOUTH AFRICA

10. Benchmarking South Africa - Energy • Energy: Compared to the upper-middle income country benchmark—despite major, recent gains, relatively weak performance in access, but favorable in terms of technical efficiency (i.e., percentage of losses), pricing, and perceptions of service.

11. 100 87 85 80 66 60 60 40 20 15 0 South Africa Upper Middle Income SSA Middle Income World Access to Electricity Network (% of population)

12. 20 19 15 15 14 14 10 8 6 5 0 South Africa Upper Middle SSA Middle Income High Income OECD World Income Electric Power Transmission and Distribution Losses (% of total output)

13. Benchmarking South Africa – Water and Sanitation • Access to water and, especially, sanitation lags behind its benchmark upper middle-income group, essentially because of the much lower access in rural areas. Notable in rural sanitation.

14. 110 99 100 93 89 90 87 80 80 70 64 60 50 South Africa Upper Middle SSA Middle Income High Income OECD World Income Access to Improved Water Sources (% of population)

15. 90 85 85 81 80 80 79 78 75 70 South Africa Upper Middle Income SSA Middle Income World Households Using Piped or Well Water as Main Sources of Drinking Water (% of households)

16. Benchmarking South Africa – ICTOverall access seems good, but other indicators suggest less than expected quality and major gaps in service delivery, quality and even access in rural areas.

17. 1600 1393 1200 800 635 501 468 408 400 99 0 South Africa Upper Middle SSA Middle Income High Income OECD World Benchmarking South Africa – ICTTeledensity (total telephone subscribers/1000 people)

18. 60 57 48 40 37 25 20 18 11 0 South Africa Upper Middle SSA Middle Income High Income OECD World Income Phone Faults (reported faults/100 mainlines)

19. Benchmarking South Africa – TransportOverall performance behind comparators. Caution: (1) idiosyncratic territorial distribution of population and economic activity and (2) peculiarities in the type of road network that is appropriate for a country with semi-arid climate, and (3) with a large proportion of its land surface carrying low population densities.

20. 20 17.3 15 10 9.2 7 6.7 6.1 5 3.3 0 South Africa Upper Middle SSA Middle Income High Income OECD World Benchmarking South Africa - Transport • Road density in terms of population (road km/1000 pop)

21. 100 82 80 57 60 52 50 40 25 21 20 0 South Africa Upper Middle SSA Middle Income High Income OECD World Income Paved Roads (% of total roads)

22. South Africa - Large Deviations from the Benchmarks—Areas of Underperformance • In electricity, Accessmajor issue, despite gains in recent years, while technical efficiency for the served population is relatively high. • In sanitation, Accessmajor issue, especially in rural areas. Quality indicators also indicate relative shortfalls. Water also, but less dramatic than in sanitation. • In information and communications technology, pricing of services catering the wealthier segments of the population and the large, internationally oriented enterprise sector—cellular calls and some international calls (to the U.S., for example)—reflect generally good and competitively provided services, but problems in teledensity, broad band access, internet access in schools, and low efficiency of the postal system. • In transport--road and rail--worse performance than the benchmark upper middle-income countries; caveats.

23. South Africa - Large Deviations from the Benchmarks

24. The rural-urban divide: Urban Bias • In electricity, access in urban areas is lower (84%) than in upper middle-income countries (90%), while in rural (37%) areas access is above the benchmark (30%). • In access to improved water, however, rural areas of South Africa (73%) lag significantly behind their upper middle-income benchmark (85%). • In access to improved sanitation, in rural areas of South Africa (44%) lag significantly behind their upper middle-income benchmark (76%). • Telephone ownership is South Africa appears to be better in both rural and rural areas than in the upper middle-income countries. Caution: other aggregate indicators of telecom service performance (especially in local services) suggest considerable scope for improvement

25. South Africa - conclusion • Access remains a major issue in sanitation, electricity (despite recent gains) and, water (particularly in rural areas), and so does performance in local telecom services. • Even transport performance appears comparatively less strong than would be expected, though more in-depth analysis of comparative performance of transport may be warranted • Policy implications: • That there remain significant needs to scale up infrastructure investments––especially in the yet unserved areas––and improve efficiency in all four major infrastructure sectors if South Africa’s infrastructure performance is to catch up with its group of upper middle-income countries. • Areas of significant shortfalls below benchmarks should be scrutinized by policymakers for possible targeting in the ongoing scaling up and efficiency strengthening efforts in the context of ASGI-SA • A similar exercise for SACU countries (Bogetic 2006b) provides some guide on the regional opportunities for infrastructure cooperation and scaling up of infrastructure beyond South Africa’s borders

26. Possible Extensions Using benchmarking as an element in broader analyses of sector performance (e.g., electricity sector review for South Africa) Extending the exercises to other countries in Africa (e.g., Lesotho, individual SACU country exercises (completed) Use of benchmarking in regional analyses (e.g., SACU (completed), SADC) Combining the benchmarking of indicators of performance with reform indicators