74th International Atlantic Economic Conference

October 04 - 07, 2012 | Montréal, Canada

A CGE analysis of the expenditure on infrastructure on the Limpopo economy

Friday, October 5, 2012: 9:00 AM
Jacobus Willem Mostert, Ph.D. , Centre for Development Support, University of the Free State, Bloemfontein, South Africa
Jan H Van Heerden, PhD , University of Pretoria, Pretoria, South Africa
Limpopo is one of the nine provinces in South Africa with a population of 5,5 million.  In terms of the sectoral contributions to the economy, the provincial economy is mainly dependant on mining and agriculture.  Mining contributed 27% to the regional Gross Domestic product in 2010 (Statistics SA, 2011).  The expansion of the mining industry is however hampered by lack of basic infrastructure like roads, rail and water.

The provincial economy is also characterized by severe poverty and inequality with a Gini coefficient of 0,67 (Rex, 2012).  The unemployment rate at the end of 2011 was 20,2%.  The province also had 3 million discouraged workers.

To address these issues the South African government has announced a R400 billion infrastructure project for the Limpopo and the neighbouring Mpumalanga provinces.  The focus of this infrastructure expansion will be the expansion of the rail and road links to the Richards bay coal harbour. It will also improve the quality of bulk services in the area.  This will enable the mines in Limpopo to produce more coal for exports purposes and for internal use in the generation of electricity in the coal fired power stations of the national utility company.

The objective of the paper is to evaluate the possible impact of the infrastructure expenditure on the Limpopo Provincial economy.

A literature survey indicated five possible links between infrastructure and the  economy namely (Fedderke and Garlick, 2008:4):

  • Infrastructure may simply be regarded as a direct input into the production process.  An increase in infrastructure would boost output and in the process induce economic growth
  • Infrastructure can be seen as a complement to other factors of production.  Better infrastructure will lead to lower cost and higher productivity in the economy
  • Higher expenditure during infrastructure projects can stimulate aggregate demand.  While the first three links between infrastructure and the economy is link to the supply side, this factor influences the economy from the demand side.
  • Government can also use infrastructure expenditure as a tool for industrial policy to drive and direct private sector investment.

The simulations for the study will be done on the South African version of the TERM model at the University of Pretoria.  The original TERM was developed by die Centre for Policy Studies at Monach University in Australia.  The model was developed specifically with the aim to be able to perform regional studies like to evaluate the impact of infrastructure expenditure on the Limpopo economy (COPS, 2012).

It is expected that the infrastructure expenditure will contribute to the expansion of the production capacity of the provincial economy.  A number of jobs will be created in the process.  It is however not a panacea for all economic challenges.


COPS. 2012. The TERM model Available WWW: http://www.monash. edu.au/policy/term.htm Accessed 30 April 2012

Fedderke, J and Garlick R. 2008. Infrastructure Development and Economic Growth in South Africa: A review of the accumulated evidence. Working Paper 12 ERSA: Pretoria

Rex. 2012. Regional Explorer Database. Global Insight: Pretoria

Statistics SA. 2011.  GDP release.  Statistics SA: Pretoria