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?  Estache et al., 2005  Infrastructure Benchmarking Database (Estache et al., WB 2005)   First Benchmarking Applications: South Africa (Bogetic & Fedderke 2005, 2006a), Lesotho (Bogetic 2006), SACU (Bogetic 2006) o o Energy o o Telecom o o Water and Sanitation o o Transport o o Large Deviations from the Benchmarks o o 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. 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: Output elasticity w.r.t. electricity: 0.1 – 0.2 range under robustness checks0.1 – 0.2 range under robustness checks 0.5 once control for institutions (Property Rights)0.5 once control for institutions (Property Rights)

6. 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). 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: Of which: 50% by the central, provincial and local governments50% by the central, provincial and local governments 40% by state enterprises (ESKOM, Transnet, 2010 World Cup)40% by state enterprises (ESKOM, Transnet, 2010 World Cup) 3-5% by development financial institutions (largely domestic, state owned)3-5% by development financial institutions (largely domestic, state owned) 5% is to be financed by Public Private Partnerships (PPP). 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. Access to Electricity Network (% of population) 66 87 15 85 60 0 20 40 60 80 100 South AfricaUpper Middle IncomeSSAMiddle IncomeWorld

12. Electric Power Transmission and Distribution Losses (% of total output) 8 14 19 15 6 14 0 5 10 15 20 South AfricaUpper Middle Income SSAMiddle IncomeHigh Income OECDWorld

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. Access to Improved Water Sources (% of population) 87 93 64 89 99 80 50 60 70 80 90 100 110 South AfricaUpper Middle Income SSAMiddle IncomeHigh Income OECDWorld

15. Households Using Piped or Well Water as Main Sources of Drinking Water (% of households) 85 80 78 81 79 70 75 80 85 90 South AfricaUpper Middle IncomeSSAMiddle IncomeWorld

16. Benchmarking South Africa – ICT Overall 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. Benchmarking South Africa – ICT Teledensity (total telephone subscribers/1000 people) 408 635 99 468 1393 501 0 400 800 1200 1600 South AfricaUpper MiddleSSAMiddle IncomeHigh Income OECDWorld

18. Phone Faults (reported faults/100 mainlines) 48 18 57 25 11 37 0 20 40 60 South AfricaUpper Middle Income SSAMiddle IncomeHigh Income OECDWorld

19. Benchmarking South Africa – Transport Overall 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. Benchmarking South Africa - Transport  Road density in terms of population (road km/1000 pop) 6.1 9.2 3.3 7 17.3 6.7 0 5 10 15 20 South AfricaUpper MiddleSSAMiddle IncomeHigh Income OECDWorld

21. Paved Roads (% of total roads) 21 57 25 52 82 50 0 20 40 60 80 100 South AfricaUpper Middle Income SSAMiddle IncomeHigh Income OECDWorld

22. South Africa - Large Deviations from the Benchmarks—Areas of Underperformance  In electricity, Access major issue, despite gains in recent years, while technical efficiency for the served population is relatively high.  In sanitation, Access major 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. 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 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 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