Infrastructure Reform Now Essential

Infrastructure reform is no longer merely a transport or logistics issue, but a key driver of inflation, economic growth and household prosperity. The World Bank recently warned that South Africa has limited time to entrench its infrastructure reforms if the country hopes to accelerate economic growth and restore its competitiveness. According to Everest Advisory Services, this warning highlights a reality that consumers are increasingly feeling in their pockets: poor infrastructure and logistical bottlenecks contribute directly to higher food prices.

“South Africa’s logistics costs as a percentage of gross domestic product (GDP) are currently estimated at between 11% and 12%, significantly higher than in many comparable emerging markets,” says Thys van Zyl, Chief Executive Officer of Everest Advisory Services. “At the same time, approximately 85% of domestic freight is transported by road due to the deterioration of rail infrastructure and operational constraints within the logistics system.”

This shift is placing increasing pressure on the entire food value chain.

“When ports, rail networks and logistics corridors do not function optimally, the cost of moving goods through the economy increases. Ultimately, these costs are borne by consumers in the form of higher food prices. This is one of the reasons why food inflation cannot be managed through interest rate policy alone.”

The transportation of grain, fresh produce, livestock products and imported agricultural inputs is increasingly contributing to inflationary pressures.

“Inefficiencies in logistics networks not only increase transport costs, but also result in delays, supply chain disruptions and higher operating costs for businesses.”

Several structural challenges continue to increase the risk of sustained food inflation.

“Persistent inefficiencies at ports and within rail transport increase logistics costs throughout the food value chain. Rising fuel and transportation costs place additional pressure on essential food products. Export delays undermine the competitiveness of South African agricultural products in international markets. Supply chain disruptions increase price volatility and the risk of shortages. Businesses are forced to maintain larger inventory levels, which increases financing and operating costs.”

The international environment further exacerbates these risks, says Van Zyl. Conflicts, disruptions to international shipping routes and growing uncertainty in global trade continue to place upward pressure on energy, transportation and commodity prices.

“South Africa is particularly vulnerable to external shocks because of its dependence on imported fuel and its deep integration into global markets. When domestic logistics systems do not operate efficiently, the impact of these international disruptions is amplified,” says Van Zyl.

Several economic risks could materialise if the economy continues to weaken without meaningful infrastructure reform.

“Continued logistics inefficiencies will increase the cost of transporting goods, leading to sustained inflationary pressure and further erosion of household purchasing power. Higher operating costs constrain investment, delay expansion and discourage new business activity, thereby suppressing economic growth.

“If inflation remains persistently high, the South African Reserve Bank may be forced to keep interest rates elevated for longer, placing additional pressure on households and businesses. Weaker growth and lower investment reduce job creation and increase the risk of further job losses. Higher logistics costs make food less affordable for millions of households, particularly in lower-income communities. Slower economic growth results in lower tax revenues, while demand for government support and social spending increases.

“Persistent infrastructure challenges and weak economic growth could undermine investor confidence, placing further pressure on the rand and increasing imported inflation. Continued weak growth, high debt levels and insufficient reforms increase the risk of further negative credit outlooks, which could raise the cost of government borrowing.”

According to Van Zyl, infrastructure reform also presents one of the greatest opportunities to address these challenges.
“The good news is that infrastructure reform is one of the few policy instruments capable of simultaneously stimulating economic growth, reducing inflation and improving South Africa’s competitiveness. Successful reforms in rail transport, ports, energy infrastructure and logistics networks can significantly reduce the cost of moving goods, stabilise supply chains, attract investment and ultimately ease pressure on food inflation,” says Van Zyl.

He believes the inflation debate should therefore extend beyond interest rates alone.

“Monetary policy remains important, but it cannot resolve structural deficiencies in infrastructure. If South Africa is to achieve lower inflation, stronger growth and improved living standards for households, infrastructure reform will need to play a central role.

“Infrastructure reform is not merely a logistics or economic priority. It has evolved into one of the most important tools for protecting households against rising food prices, supporting job creation and promoting sustainable economic growth.”

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Author: Sya Potgieter from https://everestwealth.co.za/ on behalf of Everest Wealth.