South Africa’s debt woes have been well documented, with government debt piling up and growth prospects for 2019 looking increasingly dim.
The country’s tax base is declining, while the likes of SAA and Eskom continue to drag on the economy. The country also faces rising costs to fix its large network of roads.
And according to Mike Schüssler, an economist at economists.co.za, the country simply cannot put all its road funding eggs into a single basket.
During a recent presentation at the Transport Forum, Schüssler explained that South Africa is an atypical country economically; a comparatively poor country but with the 8th largest pension fund assets in the world (in nominal US dollar terms), and higher personal car ownership as a percentage of the population than most emerging markets, including China.
To contextualise the road funding conundrum, he explained that in 2010, South Africa had 8.8 million registered vehicles on eNaTIS. This number has increased 29% to around 11.3 million vehicles today. And by 2022, he estimates eNaTIS will have around 45% more registered cars nationally to manage than it did in 2010.
With this increase in vehicles on the roads, the need for world class road infrastructure for the country and particularly Gauteng becomes even more pressing.
Schussler said the country’s total road surface of 475,000km had not increased much, while some roads are no longer drivable. Yet, around 80% of all South Africa’s land transport is performed by road, up from 73% in June 2009.
Conversely, rail freight volumes have gone “nowhere”, with only the Richards Bay coal line and the Saldanha iron ore line moving significant heavy volumes regularly.
R138 billion is needed annually to fund road maintenance
South Africa’s total road network replacement cost is estimated at R2.75 trillion in today’s money. The average road needs to be replaced every 20 years. If we replace the roads linearly over 20 years, we would have to pay R137.5 billion, per year, for the next 20 years, the economist said.
“In addition, to grow the road network just 1% a year would require about R27.5 billion,” he said. This means that total road funding required from motorists, without any leakage from collection, would be R165 billion.
The R165 billion is, however, only for roads and not for public transport.
In total, road users may have to fund another R19 billion to R21 billion a year for the public transport component. This increases the total costs that road users would have to finance to approximately R186 billion.
Schüssler said South Africa generally builds cheaper roads than Northern hemisphere countries. However, constructed with less bitumen, our roads have higher maintenance requirements. The average lifespan of local roads is about 20 years, which could be extended with good maintenance and resurfacing regimes.
He said that the country has a good road building industry, however road capacity is diminishing quickly due to funding pressures. Local government is also under pressure and is R13 billion short on operational budget.
“So they have to ‘steal’ from the capital budget,” Schüssler said.
We are using less and less fuel
Schüssler stated that total South African fuel sales (excluding paraffin, jet fuel and marine diesel) increased 50% between 1997 and 2018, from 16 billion litres to 24 billion litres annually – but the number of cars on South Africa’s roads almost doubled during this time.
According to Schüssler, the average car in 1998 consumed around 3,000 litres of fuel a year. By 2018, the average car consumed around 2,100 litres annually. In other words, the country’s vehicle park is approximately 30% more fuel efficient now than it was eleven years ago.
Fuel price would increase by at least 50% if the fuel levy were used to fund roads
Schüssler said that with fuel tax as the only method to fund the country’s roads needs – around R7.80 would be payable, per litre, in fuel tax to maintain current roads and support a 1% increase in the road network annually.
R6.18 per litre in tax would only be enough to meet our current upkeep and replacement requirements, with no growth in the road network.
He said that if all public transport was also subsidised – and if all taxis were exempt from the fuel tax – non-exempt road users would have to cough up R10, per litre, in fuel tax.
The fuel tax alone would, therefore, be a very expensive funding option – particularly for heavy trucks – whose operators would likely pass the costs onto consumers, he said.
This model also assumes that all taxes collected via the fuel levy would be used for road maintenance for the country. This money is not just for roads however and, like many countries, South Africa uses the tax to pay for public transport services.
“We have to collect money directly from road users in other forms: tolls, congestion, time-of-day, distance and other charges to settle the shortfall. Road funding in South Africa has to come from a mixture of collection methods and we have to implement these soon,” he said.