26 mega projects planned for South Africa – including a new R5 billion smart city and big push into renewable energy

Nedbank has published its updated Capital Expenditure Project Listing for 2022, outlining the big capital projects that are currently underway in South Africa.

According to the bank, 2022 saw a moderation in fixed investment activity in the country as strong local and domestic headwinds unsettled and eroded business confidence.

The value of new projects announced during the year fell to R248.5 billion from R392.7 billion in 2021. The private sector remained the major driver of investment, with planned new projects rising to R193.6 billion, accounting for 78% of the total value of new projects announced in 2022.

Capital projects by government and public corporations were subdued compared with 2021. However, these institutions have announced many projects over the past two years, mainly integrated strategic projects, which formed part of the economic recovery plan.

Nedbank said that it expects capital spending to slow in 2023. Downward pressure on investment will mainly be exerted by the impact of electricity shortages, which, coupled with slower global and local demand, easing commodity prices, slow progress with structural reforms and persistent policy uncertainties will continue to hurt investor sentiment.

According to Nedbank, load shedding and the ongoing power crisis have dried up investor confidence and significantly impacted appetite for capital projects.

Most of the biggest projects were announced in the first half of the year before near-permanent load shedding became a daily feature of South African life.

Fittingly, the energy sector became one of the biggest sources of projects, accounting for the biggest chunk of announcements.

This includes the Green hydrogen plant at the Coega Special Economic Zone, worth R75 billion; the 5th and 6th rounds of the Renewable Energy Independent Power Producer Procurement Programme (REIPPPP), valued at R34.3 billion and R12.1 billion, respectively; as well as the Seriti coal mine windfarm project, worth R12 billion.

Excluding those mega projects, total project announcements amounted to around R60 billion – which Nedbank said suggests hesitancy among businesses to commit to large capital expenditure given weak business confidence.

The RMB/BER business confidence index remained below the critical 50 levels throughout 2022, averaging 41.25 for the year, and lower than an average of 42.75 in 2021.

“Already depressed business confidence was worsened by intense load-shedding as Eskom struggled to sustain power supply and a deterioration in global growth prospects. The impact of the Russian war on Ukraine continued to manifest through higher commodity prices and a surge in inflation, which forced central banks to aggressively tighten monetary policies.

“At the same time, demand from China, one of our key export destinations, was contained by its zero-Covid-19 policy for most of the year. These undermined activity in some of the export-orientated industries. On the other hand, high global commodity prices, amplified by the Russian/Ukraine conflict, encouraged some mining companies to expand operations,” Nedbank said.

Government projects also dwindled after presenting the Strategic Integrated Projects two years ago. The value of government projects fell to R20 billion in 2022 from R33.8 billion in 2021.

The biggest project recorded is the 524,000 square metres (sqm) mixed-use government district, worth R18 billion in Salvokop, Pretoria. Most of the medium-sized government projects were dominated by waste and water treatment projects in various provinces, Nedbank said.

Outlook for 2023

According to the banking group, while capital project spending is expected to slow further in 2023, underlying investment activity is starting to pick up from the implosion caused by the strict lockdowns of 2020.

“Even though private firms became more hesitant as load-shedding intensified and tighter financial conditions dimmed domestic and global growth prospects, investment by the private sector nonetheless grew by 7.1% over the first three quarters of last year,” Nedbank said.

“This, coupled with a modest increase in capital outlays by public corporations, outweighed the decline in capital expenditure by the general government.”

Nedbank said its research shows that the recovery in fixed investment is struggling to gain momentum on the back of a challenging environment, which is causing apprehension by some organisations, particularly in the private sector, to invest in large-scale capital projects.

“Companies in some industries also have sufficient capacity and therefore have little need to expand operations until demand improves substantially,” it said.

Furthermore, the divisions within the government on how to stabilise the electricity supply in the face of destructive vested interest and widespread criminality are unlikely to inspire confidence and could still convince many private companies to either postpone or scrap their expansion plans.

“We are likely to see some acceleration in fixed investment activity in the renewable energy sector, while companies will probably continue to invest in automation and digitisation. Although capital outlays by the public sector will remain patchy, Nedbank’s listing suggests some improvement in infrastructure investment as government slowly presses ahead with its strategic projects.”

The table below outlines the 26 mega projects announced in 2022, and when they’re expected to be completed.