South Africa plans to invest over 54.5 billion USD in infrastructure over the next three years to boost economic growth. This initiative will focus on transport, energy, and water sectors, with a proposed VAT increase to fund these projects. The economy has faced stagnation, and the government aims to improve public services and drive development through this budget.
On March 12, 2025, South Africa revealed a strategic plan to invest over 1 trillion rand (approximately 54.5 billion USD) in public infrastructure over the next three years. This initiative aims to propel economic growth, disclosed by Finance Minister Enoch Godongwana during his budget presentation in Cape Town. The funding aligns with renewed government spending priorities after delays caused by internal debates about a proposed tax increase.
Godongwana emphasized that infrastructure investment is essential for fostering economic development, job creation, and improved public services. “Infrastructure is a key pillar of our growth strategy,” he stated, underlining its role in the country’s economy. The budget prioritizes capital payments, which are now the fastest-expanding area in government expenditures.
The infrastructure investment will target three primary areas: 402 billion rand for transport and logistics, 219.2 billion rand for energy infrastructure, and 156.3 billion rand for water and sanitation projects. Significant initiatives include the South African National Roads Agency’s 100 billion rand allocation for road maintenance and upgrades to railway signaling systems by the Passenger Rail Agency.
Despite the budget’s positive outlook, the South African economy has faced stagnation for over ten years, averaging less than 2% GDP growth. In 2024, the economy recorded a minimal growth of 0.6%, with projections estimating 1.8% growth from 2025 to 2027. Government spending is set to rise from 2.4 trillion rand in 2024/25 to 2.83 trillion rand by 2027/28.
As part of the budget proposal, a controversial VAT increase of 0.5 percentage points has been suggested for 2025/26 and another in the following year, raising the VAT rate to 16% by 2026/27. Godongwana justified this increase by citing the necessity of additional revenue to address ongoing demands in sectors such as health, education, and security, predicting that it could generate significant revenue in the coming years.
The decision to raise VAT comes after consideration of alternatives such as increasing corporate and personal income taxes but was viewed as less effective for revenue generation and potentially detrimental to economic growth. “This decision was not made lightly. No minister of finance is ever happy to increase taxes,” Godongwana remarked, emphasizing the need to balance fiscal responsibilities with developmental goals.
The South African government’s announcement of a 54.5 billion USD infrastructure plan aims to stimulate economic growth through substantial investments in transport, energy, and water sectors. Despite challenges, including low GDP growth and a proposed VAT increase, the budget highlights a commitment to improving public services and advancing economic development. The planned spending reflects a strategic approach to overcoming longstanding economic stagnation while addressing critical service delivery needs.
Original Source: english.news.cn
