International Benchmarking of South Africa’s Infrastructure

Performance

Zeljko Bogetic &Zeljko Bogetic &Johann FedderkeJohann Fedderke

Infrastructure and Growth WorkshopInfrastructure and Growth Workshop

Economic Research South Africa Economic Research South Africa May 29-31, 2006May 29-31, 2006

Cape Town, South AfricaCape Town, South Africa

Outline

Why Benchmark Infrastructure Performance?

Infrastructure Benchmarking Database (Estache Estache et alet al.,., WB 20052005)

First Benchmarking Applications: South Africa (Bogetic & Fedderke 2005, 2006a), Lesotho (Bogetic 2006), SACU (Bogetic 2006)

o Energy o Telecomo Water and Sanitationo Transporto Large Deviations from the Benchmarkso The Rural-Urban Divide

Conclusion and Policy Implications

Possible Extensions

Why Benchmark Infrastructure Performance?

Strong Association Between Strong Association Between Infrastructure and real output (as well Infrastructure and real output (as well as child health, human capital as child health, human capital accumulation and MGDs)accumulation and MGDs)

Evidence from South AfricaEvidence from South Africa Decline in Inf. Invest. in South AfricaDecline in Inf. Invest. in South Africa The Quest for Accelerated and Shared The Quest for Accelerated and Shared

Growth in South Africa—ASGI-SAGrowth in South Africa—ASGI-SA The Need to Identify Sectoral and The Need to Identify Sectoral and

Comparative Gaps in Infrastructure Comparative Gaps in Infrastructure PerformancePerformance

International Evidence: International Evidence: Infrastructure and GrowthInfrastructure and Growth

Figure 1: Inrastructure Accumulation and Growth

(1960-97 country averages, percent)

y = 0.4224x + 0.0007

R 2 = 0.3487

-4%

-2%

0%

2%

4%

6%

-2% 0% 2% 4% 6% 8% 10% 12%

Growth in infrastructure stocks per worker

G

Others

lac

eap7

Evidence from South AfricaEvidence from South Africa

Aggregate time series growth model Aggregate time series growth model (Fedderke, Perkins, Luiz, 2005):(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 0.5 once control for institutions (Property Rights)Rights)

DECLINE IN INFRASTRUCTURE DECLINE IN INFRASTRUCTURE INVESTMENTS IN SOUTH AFRICAINVESTMENTS IN SOUTH AFRICA

Real GDP and public-sector economic infrastructural investment (gross) and fixed capital stock (indices, all measured per capita)

60

100

140

180

220

260

1960 1970 1980 1990 2000

Inde

x (1

960

= 1

00)

(all

valu

es p

er c

apit

a)

Infrastructural investment Infrastructural fixed capital stock GDP

The Quest for Accelerated and The Quest for Accelerated and Shared GrowthShared Growth

Accelerated and Shared Growth Strategy (ASGISA)Accelerated and Shared Growth Strategy (ASGISA) Scaling up infrastructure—key element of ASGISAScaling up infrastructure—key element of ASGISA Massive scale up plans underwayMassive scale up plans underway

R372-billion (about US$60 billion, or 24% of 2005 dollar GDP) spending 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 plan over the next three years (from the central and local governments and state enterprises combined).and state enterprises combined).

Of whichOf 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, South African economy accelerated to robust 5% growth in 2005, from the 3% average of the past decade from the 3% average of the past decade

=> Question of infrastructure requirements of accelerated growth => Question of infrastructure requirements of accelerated growth (Bogetic & Fedderke 2006 “Forecasting Investment Needs in SA’s (Bogetic & Fedderke 2006 “Forecasting Investment Needs in SA’s Electricity and Telecommunications Sectors” WB WPS 3929 Electricity and Telecommunications Sectors” WB WPS 3929 (February)(February)

Infrastructure Benchmarking Database International research database (Eustache & Goicoehea, World International research database (Eustache & Goicoehea, World

Bank, 2005)Bank, 2005)

Coverage: 207 countriesCoverage: 207 countries

Sectors: Power, Water & Sanitation, Telecom, TransportSectors: Power, Water & Sanitation, Telecom, Transport

Performance dimensions: Access, Pricing/Affordability, Performance dimensions: Access, Pricing/Affordability, Technical and Perceived QualityTechnical and Perceived Quality

Indicators: Energy (7), W & S (4), Telecom (14), Transport (12); Indicators: Energy (7), W & S (4), Telecom (14), Transport (12); some indicators available for rural and urban areas.some indicators available for rural and urban areas.

Comparators: Comparators: Upper Middle-Income Group (Main benchmark Upper Middle-Income Group (Main benchmark for South Africa),for South Africa), other income groups, OECD, Sub-Saharan other income groups, OECD, Sub-Saharan Africa, Latin America & the Caribbean, South Asia, East Asia & Africa, Latin America & the Caribbean, South Asia, East Asia & Pacific, Middle East & North AfricaPacific, Middle East & North Africa

BENCHMARKING BENCHMARKING

SOUTH AFRICASOUTH AFRICA

Benchmarking South Africa - EnergyBenchmarking South Africa - Energy Energy: Compared to the upper-middle income country benchmark—despite Energy: Compared to the upper-middle income country benchmark—despite

major, recent gains, relatively weak performance in access, but favorable in major, recent gains, relatively weak performance in access, but favorable in terms of technical efficiency (i.e., percentage of losses), pricing, and terms of technical efficiency (i.e., percentage of losses), pricing, and perceptions of service. perceptions of service.

Access to Electricity Network Access to Electricity Network (% of population)(% of population)

66

87

15

85

60

0

20

40

60

80

100

South Africa Upper Middle Income SSA Middle Income World

Electric Power Transmission and Distribution Electric Power Transmission and Distribution Losses (% of total output)Losses (% of total output)

8

14

19

15

6

14

0

5

10

15

20

South Africa Upper MiddleIncome

SSA Middle Income High Income OECD World

Benchmarking South Africa – Water and Benchmarking South Africa – Water and SanitationSanitation

Access to water and, especially, sanitation lags behind its Access to water and, especially, sanitation lags behind its benchmark upper middle-income group, essentially because of the benchmark upper middle-income group, essentially because of the much lower access in rural areas. Notable in rural sanitation. much lower access in rural areas. Notable in rural sanitation.

Access to Improved Water Sources Access to Improved Water Sources (% of population)(% of population)

87

93

64

89

99

80

50

60

70

80

90

100

110

South Africa Upper MiddleIncome

SSA Middle Income High Income OECD World

Households Using Piped or Well Water as Households Using Piped or Well Water as Main Sources of Drinking Water Main Sources of Drinking Water

(% of households)(% of households)

85

80

78

81

79

70

75

80

85

90

South Africa Upper Middle Income SSA Middle Income World

Benchmarking South Africa – ICTBenchmarking South Africa – ICTOverall access seems good, but other indicators suggest less than Overall access seems good, but other indicators suggest less than

expected quality and major gaps in service delivery, quality and even expected quality and major gaps in service delivery, quality and even access in rural areas. access in rural areas.

Benchmarking South Africa – ICTBenchmarking South Africa – ICTTeledensity (total telephone subscribers/1000 people)Teledensity (total telephone subscribers/1000 people)

408

635

99

468

1393

501

0

400

800

1200

1600

South Africa Upper Middle SSA Middle IncomeHigh Income OECD World

Phone Faults Phone Faults (reported faults/100 mainlines)(reported faults/100 mainlines)

48

18

57

25

11

37

0

20

40

60

South Africa Upper Middle

Income

SSA Middle Income High Income OECD World

Benchmarking South Africa – TransportBenchmarking South Africa – TransportOverall performance behind comparators. Caution: (1) idiosyncratic territorial Overall performance behind comparators. Caution: (1) idiosyncratic territorial

distribution of population and economic activity and (2) peculiarities in the type of 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 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.large proportion of its land surface carrying low population densities.

Benchmarking South Africa - TransportBenchmarking South Africa - Transport Road density in terms of population (road km/1000 pop)Road density in terms of population (road km/1000 pop)

6.1

9.2

3.3

7

17.3

6.7

South Africa Upper Middle SSA Middle Income High Income OECD World

Paved Roads Paved Roads (% of total roads)(% of total roads)

21

57

25

52

82

50

0

20

40

60

80

100

South Africa Upper Middle

Income

SSA Middle Income High Income OECD World

South Africa - Large Deviations from the Benchmarks—Areas of

Underperformance In electricityIn electricity, , AccessAccess major issuemajor issue,, despite gains in recent years, while despite gains in recent years, while

technical efficiency for the served population is relatively high. technical efficiency for the served population is relatively high. In sanitationIn sanitation, , AccessAccess major issuemajor issue, especially in rural areas. Quality , especially in rural areas. Quality

indicators also indicate relative shortfalls. indicators also indicate relative shortfalls. WaterWater also, but less dramatic also, but less dramatic than in sanitation.than in sanitation.

In information and communications technologyIn information and communications technology,, pricing of pricing of services catering the wealthier segments of the population and the large, services catering the wealthier segments of the population and the large, internationally oriented enterprise sector—cellular calls and some internationally oriented enterprise sector—cellular calls and some international calls (to the U.S., for example)—reflect generally good and international calls (to the U.S., for example)—reflect generally good and competitively provided services, but competitively provided services, but problems in teledensity, broad band problems in teledensity, broad band access, internet access in schools, and low efficiency of the postal access, internet access in schools, and low efficiency of the postal system. system.

In transport--In transport--road and rail--worse performance than the benchmark road and rail--worse performance than the benchmark upper middle-income countries; caveats. upper middle-income countries; caveats.

South Africa - Large Deviations from the Benchmarks

The rural-urban divide: Urban BiasThe rural-urban divide: Urban Bias In In electricityelectricity, access in urban areas is lower (84%) than in , access in urban areas is lower (84%) than in

upper middle-income countries (90%), while in rural (37%) upper middle-income countries (90%), while in rural (37%) areas access is above the benchmark (30%).areas access is above the benchmark (30%).

In In access to improved water, access to improved water, however, rural areas of South however, rural areas of South Africa (73%) lag significantly behind their upper middle-income Africa (73%) lag significantly behind their upper middle-income benchmark (85%). benchmark (85%).

In In access to improved sanitation, access to improved sanitation, in rural areas of South in rural areas of South Africa (44%) lag significantly behind their upper middle-income Africa (44%) lag significantly behind their upper middle-income benchmark (76%).benchmark (76%).

TelephoneTelephone ownership is South Africa appears to be better in ownership is South Africa appears to be better in both rural and rural areas than in the upper middle-income both rural and rural areas than in the upper middle-income countries. Caution: other aggregate indicators of telecom countries. Caution: other aggregate indicators of telecom service performance (especially in local services) suggest service performance (especially in local services) suggest considerable scope for improvement considerable scope for improvement

South Africa - conclusionSouth Africa - conclusion Access Access remains a major issue in sanitation, electricity (despite recent gains) remains a major issue in sanitation, electricity (despite recent gains)

and, water (particularly in rural areas), and so does performance in local and, water (particularly in rural areas), and so does performance in local telecom services. telecom services.

Even transport performance appears comparatively less strong than would be Even transport performance appears comparatively less strong than would be expected, though more in-depth analysis of comparative performance of expected, though more in-depth analysis of comparative performance of transport may be warrantedtransport may be warranted

Policy implications:Policy implications:

That there remain significant needs to scale up infrastructure investments––That there remain significant needs to scale up infrastructure investments––especially in the yet unserved areas––and improve efficiency in all four major 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 infrastructure sectors if South Africa’s infrastructure performance is to catch up with its group of upper middle-income countries. its group of upper middle-income countries.

Areas of significant shortfalls below benchmarks should be scrutinized by Areas of significant shortfalls below benchmarks should be scrutinized by policymakers for possible targeting in the ongoing scaling up and efficiency policymakers for possible targeting in the ongoing scaling up and efficiency strengthening efforts in the context of ASGI-SAstrengthening efforts in the context of ASGI-SA

A similar exercise for SACU countries (Bogetic 2006b) provides some guide on the A similar exercise for SACU countries (Bogetic 2006b) provides some guide on the regional opportunities for infrastructure cooperation and scaling up of infrastructure regional opportunities for infrastructure cooperation and scaling up of infrastructure beyond South Africa’s borders beyond South Africa’s borders

Possible Extensions

Using benchmarking as an element in broader analyses of Using benchmarking as an element in broader analyses of sector performance (e.g., electricity sector review for sector performance (e.g., electricity sector review for South Africa)South Africa)

Extending the exercises to other countries in Africa (e.g., Extending the exercises to other countries in Africa (e.g., Lesotho, individual SACU country exercises (completed)Lesotho, individual SACU country exercises (completed)

Use of benchmarking in regional analyses (e.g., SACU Use of benchmarking in regional analyses (e.g., SACU (completed), SADC)(completed), SADC)

Combining the benchmarking of indicators of performance Combining the benchmarking of indicators of performance with reform indicators with reform indicators