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Economic Infrastructure
Stocks and Investment in
South Africa, 1870 – 2000
1. ECONOMIC INFRASTRUCTURE, ITS
PERFORMANCE AND ECONOMIC GROWTH
 Infrastructure comprises activities that share
technical features (including economies of scale)
and economic features (such as externalities). It
includes activities which are not directly
productive but which are necessary for the
development of productive activities.
 Infrastructure comprises both economic and
social infrastructure
•Barro’s (1990) model of endogenous growth
demonstrates that an important attribute of
infrastructure expenditure by the public sector
is that it raises the marginal product of other
capital used in the production process,
although only up to a point.
•Empirical estimates of the impact of
infrastructure on economic growth vary widely
What accounts for the performance of
infrastructure (a particular issue in Africa)?
1. delivery of infrastructure services
usually occurs within a market structure
where competition is absent
2. the agencies charged with
responsibility for delivering infrastructure
are seldom given the managerial and
financial autonomy they need to perform
3. actual users of the infrastructure are
not positioned to make their demands
felt
Converging forces are opening up new
opportunities for innovation in infrastructure
delivery:
• Advances have occurred in technology and
in its regulatory environment which have
introduced more competition
• A growing awareness of the necessity for a
larger private sector role in infrastructure
delivery and management.
• Greater concern exists for environmental
sustainability and poverty reduction and
this is providing impetus for infrastructure
reform
3. Trends in economic infrastructure in SA
• Long-term decline infrastructure spending & savings
• Late 1990s: Telkom, Eskom, SAA
1 400
9
1 200
8
7
1 000
6
800
5
600
4
400
3
200
1960
2
1970
1980
Infrastructure investment per capita
1990
2000
% of GDP
% of GDP
Rands, 1995 prices
Public-sector economic infrastructure investment (gross)
per capita and as a percentage of GDP
Government consumption and investment components
of GDP measured as a percentage of GDP
22
% of GDP
18
14
10
6
2
1940
1950
1960
Government consumption
1970
1980
1990
2000
Government gross fixed capital formation
• Rising government consumption expenditure
financed by investment cutbacks and
borrowing
18 000
1 500
16 000
1 200
14 000
900
12 000
600
10 000
1960
300
1970
GDP per capita
1980
1990
Investment (rands, 1995 prices)
GDP (rands, 1995 prices)
Per capita: real GDP and public-sector economic
infrastructure investment (gross)
2000
Infrastructure investment per capita
• Correlation for 1960-2002: 0.6
• Negative correlation for 1993-2002 (-0.26)
 Existence of long-run relationships between
GDP and infrastructure (INF) can be tested
using Pesaran, Shin and Smith (PSS) F-tests
1. Estimate the following equation:
p
p
i 1
i 1
DGDPt      i DGDPt i    i DINFt i  d 1GDPt 1  d 2 INFt 1   t .
2. Compute F-statistic for joint significance of
d1 = d2 = 0 and compare with critical values;
F>FI(1) indicates INF affects GDP (d1 = d2 = 0
is rejected); F<FI(0) indicates INF does not
affect GDP; FI(0) < F < FI(1): inconclusive
3. Repeat with DINFt on LHS; RHS unchanged
• The PSS F-statistics indicate forcing relationships from
infrastructure investment to GDP and from infrastructure
fixed capital stock to GDP.
Table 1:
PSS F-tests for the relationship between real GDP and infrastructure
investment and infrastructure fixed capital stock (“INFR”)
Relationship between GDP per
capita
and INFR per capita
Measure of
infrastructure
GDP as outcome
variable; *
indicates GDP
determined by
INFR
INFR as
outcome
variable; *
indicates
INFR
determined by
GDP
Infrastructure
investment
6.39 *
0.88
Infrastructure fixed
capital stock
7.69 *
2.78
Railway lines (route kilometres) and real GDP
25 000
700
Narrow gauge excluded (1945)
20 000
500
15 000
400
300
10 000
200
* Transvaal included (1902)
5 000
100
0
0
1875 1885 1895 1905 1915 1925 1935 1945 1955 1965 1975 1985 1995 2005
Railway lines
Real GDP
• Early rail development closely related to mining
• Average growth rate 1875-1930: 8.5% p.a.
• “Plateau” effect from 1930
Real GDP (Rbn, 1995 prices)
Railway lines (route km)
600
Per capita: real GDP, railway locomotives
and railway coaching stock
0.5
Figures are expressed
per capita or per thousand
15 000
0.4
12 000
0.3
9 000
0.2
6 000
0.1
3 000
0.0
1910
1920
1930
Real GDP
1940
1950
1960
Locomotives
1970
1980
1990
2000
Coaching stock
• Downturn in actual numbers from early 1980s
• F-tests: GDP ↔ locomotives (actual)
• F-tests: GDP → coaching stock (actual)
Locomotives and coaching stock
(number per thousand)
Real GDP (rands, 1995 prices)
18 000
Per capita: real GDP, railway freight
and railway passenger journeys
Figures are expressed
per capita
180
15 000
140
12 000
100
9 000
6 000
60
3 000
1910
20
1920
1930
Real GDP
1940
1950
1960
Freight
1970
1980
1990
2000
Passenger journeys
• Strong positive association 1911 - 1993
• F-tests: GDP → freight (pc/actual)
• F-tests: GDP → passengers (actual)
Freight and passenger journeys
(index, 1950 = 100)
Real GDP (rands, 1995 prices)
18 000
Per capita: real GDP and national & provincial paved roads
2.0
Figures are expressed
per capita or per thousand
15 000
1.5
12 000
1.0
9 000
0.5
6 000
3 000
1930
0.0
1940
1950
Real GDP
1960
1970
1980
1990
2000
Paved roads
• Strong positive association
• F-tests: Road → GDP (actual)
• ARDL results indicate paved roads → GDP
Paved roads
(kilometres per thousand)
Real GDP (rands, 1995 prices)
18 000
Per capita: real GDP, passenger vehicles, and
commercial vehicles for transport of goods
500
Figures are expressed
per capita
15 000
400
12 000
300
9 000
200
6 000
100
3 000
1920
0
1930
1940
1950
Real GDP
1960
1970
Passenger vehicles
1980
1990
Vehicles (index, 1950 = 100)
Real GDP (rands, 1995 prices)
18 000
2000
Goods vehicles
• Slow / negative growth from mid-1980s…
• …but not the sharp decline experienced by rail
• F-tests (actual): passenger vehicles → GDP; goods vehicles ↔
GDP
Per capita: real GDP and cargo handled at ports
5
Figures are expressed
per capita
15 000
4
12 000
3
9 000
2
6 000
1
3 000
1910
0
1920
1930
1940
Real GDP
1950
1960
1970
1980
1990
Cargo (harbour tons per capita)
Real GDP (rands, 1995 prices)
18 000
2000
Cargo handled at ports
• Strong growth in late 1970s: Richards Bay &
Saldanha; growing trade in 1990s
• F-tests: GDP → cargo (actual)
Per capita: real GDP and SAA passengers
(domestic and international)
160
Figures are expressed
per capita or per 1000
16 000
130
14 000
100
12 000
70
10 000
40
8 000
10
1950
1960
1970
1980
Real GDP
1990
2000
SAA passengers
• Strong positive association
• F-tests: indicate GDP → SAA passengers
(actual)
Passengers (number per 1000)
Real GDP (rands, 1995 prices)
18 000
Per capita: real GDP and passengers on international
flights at South African airports (all airlines)
150
Figures are expressed
per capita or per 1000
120
16 000
90
14 000
60
12 000
30
10 000
1960
Passengers (number per 1000)
Real GDP (rands, 1995 prices)
18 000
0
1970
Real GDP
1980
1990
2000
Passengers (arrivals and departures)
• Generally positive relationship except for 1989 - 1993
• F-tests: GDP → passengers (pc & pc/actual, unclear actual)
Per capita: real GDP and fixed phone lines
150
Figures are expressed
per capita or per 1000
15 000
120
12 000
90
9 000
60
6 000
30
3 000
1910
0
1920
1930
1940
1950
1960
Real GDP
1970
1980
1990
Fixed lines (number per 1000)
Real GDP (rands, 1995 prices)
18 000
2000
Fixed phone lines
• F-tests: GDP → fixed lines (actual & pc/actual)
• Puzzling slowdown in 1960s (when GDP
growth was strong)
Cross-country comparison: phone lines per 1000 people, 2001
Phone lines per 1000 people
900
800
700
United
States
600
500
400
300
200
100
South Africa
0
0
5 000
10 000
15 000
20 000
25 000
30 000
35 000
Gross national income per capita ($, purchasing power parity)
fixed
mobile
Sources: World Telecommunication Development Report , 2002; World Development Indicators , 2003.
• Cross-country correlations of 0.94 (fixed
lines) and 0.91 (mobile lines)
• SA phone lines pc appears low (esp. fixed)
Per capita: real GDP and electricity generated
6 000
Figures are expressed
per capita
5 000
15 000
4 000
12 000
3 000
9 000
2 000
6 000
3 000
1910
1 000
Electricity
(kilowatt hours per capita)
Real GDP (rands, 1995 prices)
18 000
0
1920
1930
1940
Real GDP
1950
1960
1970
1980
1990
2000
Electricity generated
• Power failures affect other infrastructure: lights, rail &
air etc. (North America in Aug 2003)
• F-tests: GDP → elec. (pc & pc/actual); also ↔ actual
Electricity consumption per capita in
kilowatt hours
Cross-country comparison: electricity consumption per cap., 2000
18 000
Sweden and Finland
Canada
15 000
Kuwait
United States
12 000
9 000
South Africa
6 000
3 000
0
0
5 000
10 000
15 000
20 000
25 000
30 000
35 000
Gross national income per capita ($, purchasing power parity)
Source: World Development Indicators , 2002 and 2003.
• Cross-country correlation of 0.86
• SA in line with other countries
40 000
Phases of Infrastructure Development
South Africa: indices of infrastructure
200
Index (1990 = 100)
150
100
50
0
1870
1880
1890
1900
1910
1920
1930
1940
1950
1960
Railway lines
Goods stock (rail)
Electricity
Phone lines, incl. mobile
1970
1980
1990
Paved roads
2000
Conclusion
1.The relationship between economic
infrastructure and economic growth
appears to run in both directions.
Economic growth provides both the need
for, and the resources to fund.
2.SA’s stock of economic infrastructure has
developed in phases.
3.The need for investment in economic
infrastructure never goes away.
Conclusion (policy implications)
1. Monitor growing pressures on existing
2.
3.
4.
infrastructure-related goods and services when GDP
rises – identify congestion and wear & tear
Respond to bottlenecks through investment, since
aggregate infrastructure investment has a positive
impact on long-run GDP
In some cases (no bottlenecks), plateau effects
may be desirable (but maintenance remains
important)
Recently: improvement in infrastructure investment
and GDP growth. The big question is how this
investment drive is going to be sustained when our
savings rate is still so low.
Appendix – infrastructure developments





New trains (15-year programme); Gautrain
New aeroplanes (Airbus)
New airport (La Mercy)
New port (Coega)
Upgraded facilities at existing ports &
airports
 Roads – various projects (including expanded
public works programme)
 Fixed phone lines: SNO (?)
 Electricity – remains a concern, but growing
level of awareness; a global problem?