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Infrastructure investment and the risk of carbon lock-in

Investment in infrastructure in South Africa peaked in 1981, and then languished for two decades. From 2000 onwards, gross fixed capital formation increased dramatically, doubling in a period of 8 years. In the wake of the global financial crisis of 2008 investment levels dropped somewhat, but as a result of the FIFA 2010 World Cup and the related infrastructure projects, remained at a high level. South Africa’s infrastructure investment drive has been spearheaded by public corporations. Whereas the spending patterns of general government and private business have remained relatively stable since 2000, investment by public corporations has risen sharply, and this largely explains the recent rise in overall capital formation.

Over the same period, the contribution of the tertiary sector (which is typically less energy-intensive than the primary and secondary sectors) to GDP increased by 8 percent (to 69.6 percent), while the contribution of the primary sector fell by almost a third (to 7.9 percent). It is clear that the energy intensity picture in South Africa is changing over time. What is not clear yet, however, is whether this is predominantly due to increased energy efficiency and decoupling between economic growth and energy use, or whether this is being driven by structural changes to the South African economy.

A cost-benefit analysis is only as good as the assumptions that underlie it. If a rigorous assessment of the relative merits of exploiting Karoo Basin shale gas is to be undertaken, it is important that these two factors (amongst other critical assumptions – on both the cost and benefit side of the analysis) are considered in detail.

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Fairness and toll roads

The Gauteng Freeway Improvement Project tolls are one of the first big tests of the policy of “user pays” for infrastructure which has been introduced by government. In theory, making the user pay for the infrastructure that they benefit from has the advantage of fairness, and helps to ease funding constraints that could otherwise prevent the construction of economically important infrastructure. However, in practice, both the fairness and economic sense of a given user pays project depends on the details of how it is implemented – and this is where problems begin to arise with the GFIP.

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