South Africa cannot put all its road funding eggs in one basket. This is according to Mike Schüssler, an economist at economists.co.za.
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 also said that the use of the fuel levy alone to fund roads is not a viable solution to South Africa’s needs:
Point 1: We are a road using country – roads are the lifeblood of our economy
He 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.
Point 2: R138 billion is needed annually to fund road maintenance and a further R28 billion to expand our road network to meet the needs of the economy
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,” he calculates.
“In addition, to grow the road network just 1% a year would require about R27,5 billion”. This means that total road funding required from motorists, without any leakage from collection, would be R165 billion. (It also implies that this funding is not shared with other imperatives like housing, as is currently the case with fuel tax)
The R165 billion is however only for roads and not for public transport. In total Road users may have to fund another R19 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.
Schüssler is of the view South Africa has a good road building industry however road capacity is diminishing quickly due to funding pressures. Local government is also under pressure; Schüssler believes they are R13 billion short on operational budget. “So they have to “steal” from the capital budget,” he said.
Point 3: We are using less and less fuel, this is a diminishing tax stream
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, although 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.
Point 4: Fuel price would increase by at least 50% if the fuel levy were used to fund roads
Based on these assumptions, Schüssler had modelled that, with fuel tax the only road funding method - 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)
Continuing, he said that if all public transport was 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.
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.
In conclusion, Schussler showed that the argument presented by some that fuel levies are the answer to road funding is a misnomer.
“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 concluded.
CEO of the Electronic Toll Collection Company, Coenie Vermaak backs this view. “To remain the economic hub of South Africa there is no denying the need to build and upgrade Gauteng’s road network. Yes, there are a number of funding options available, open road tolling remains an efficient collection mechanism to implement the user pays funding model which is the fairest and most viable option.”