BMI View: On the back of a recent favourable high court ruling, the Guateng Highway e-toll saga might have a happy ending after all. Political wrangles, corruption scandals and populist measures have thus far marred the project and left Sanral wading in debt, and the South African infrastructure sector in a quagmire. We monitor the developments closely; yet though we highlight the upside risk we have refrained from incorporating the event in our forecast at this stage.
In South Africa, grand infrastructure projects are often providing a source of fiscal legitimacy for the government. I.e. explaining how much and where the proceeds of the tax money are going. Hence, when e-tolling was introduced for the controversial 185km long Gauteng highways, it became the subject of heated debate, union protests, and a number of legal battles. Travellers were now forced to pay for what was previously 'free' or, reportedly, covered by the income, road, fuel, motor vehicle and VAT taxes.
However, following the most recent ruling by the North Guateng High Court, which ruled against the application to put the implementation of e-tolling on hold, the project could potentially be back on route in 2013. Furthermore, with the ANC election now confirmed and with Cyril Ramaphosa elected as Zuma's deputy (the former is praised by the pro-business society) we could see an ease to the political wrangling that has as of lately impeded growth in the infrastructure sector.
We are currently forecasting a 3.9% real industry growth for the South African construction sector (3.4% for the roads and bridges sub-sector) and will monitor the proceedings closely. In the event of a significant step forward we will incorporate it into our industry outlook.
|The Lack Of Consistency|
|Construction Industry Value (US$bn), Real Growth (%)|
That said, though we highlight the upside risk, the battle has not yet been won. The ANC is counting on the powerful trade union Cosatu for votes (one of the main opponents), and despite previous agreements with Sanral, the South African National Roads Agency, during 2012 the government bowed flat to populist pressure. Plans to charge tolls on the highways in the Gauteng Province, the country's economic hub, was halted after Outa, the civil society organisation formed solely to contest the introduction of e-tolls, and Cosatu opposed the fees and challenged the move in court.
Sanral, who was relying on the income from these tolls to repay the ZAR20bn (US$2.5bn) debt raised for improving the highways, was buckling under the financial burden to meet its pending short-term liabilities. In fact, Moody's, the rating agency, has announced that it is raising its red flag unless e-tolling starts to make money by October 2013. The saga certainly raises questions about policy predictability, and acts as an effective deterrent for private investment.