The preliminary capital expenditure at the close of the 2023/24 fiscal year, including accruals (invoices pending payment), is reported at R7.1billion, accounting for 92% of the adjusted budget of R7.7 billion. This report provides a comprehensive analysis of capital expenditures for the final quarter, incorporating a quarter-on-quarter comparison and an estimated economic impact assessment of the final capital expenditure on the city's economy
The analysis of capital expenditure reveals a consistent trend of increasing spending across all four quarters. In the first quarter (Q1), the city allocated R0.6 billion, establishing a moderate yearly baseline. Expenditure nearly doubled in the second quarter (Q2) to R1.1 billion. The third quarter (Q3) maintained this upward trajectory, further increasing toR1.2 billion. The most pronounced escalation occurred in the fourth quarter(Q4), where spending surged to R4.2 billion. This represents a remarkable 251%increase compared to the third quarter. This substantial rise in the final quarter is characteristic of the fiscal year-end period, driven by the imperative to utilize remaining budget allocations and expedite procurement processes fully.
Figure 1:
Source: EThekwini Municipality Expenditure Unit, 2024
The eThekwini municipality’s actual capital expenditure of R7.1 billion for the fiscal year 2023/24 is considered an economic injection. The economic impact of capital expenditure in the City of Durban is assessed using a Social Accounting Matrix (SAM) model developed by the City’s Economic Development Unit. The SAM provides a comprehensive framework that captures detailed economic transactions and their flow within the city, allowing for a thorough evaluation of the effects of economic shifts prompted by such investments.
Furthermore, the SAM model leverages multipliers to quantify the total impact of an initial economic stimulus.
The model then simulates the following impacts:
o GDP Impact: Measures the change in the overall economic output generated across all industries from an initial expenditure
o Household Income Impact: Assesses how household incomes are affected resulting from an initial expenditure
o Employment Impact: Estimates the number of jobs created or supported by the initial expenditure
The direct impact of R2,500 million reflects the immediate economic activities generated by the expenditure, while the indirect impact of R1,452 million accounts for the additional economic activities stimulated through the supply chain. Furthermore, the induced impact of R786 million captures the increased consumption resulting from the spending by those who directly and indirectly benefit from the capital expenditure. Collectively, these impacts contribute a total of R4,738 million to the city’s GDP. Notably, this total impact represents a 1.3% growth in the city’s GDP, taking 2023 as the base year. This demonstrates the significant role that capital investments play in driving economic growth.
Table 1: Estimated GDP Impact in R’millions
The multiplier effect, calculated by dividing the total impact on GDP(R4,738 million) by the total capital expenditure (R7,060 million), yields a value of approximately 0.671. This multiplier suggests that for every R1million invested in capital expenditure, the city's GDP grows by approximatelyR0.671 million. While this indicates that the expenditure does generate additional economic activity, the relatively modest multiplier reflects that the return on investment, in terms of GDP growth, is somewhat limited. This could point to the potential need for more strategic allocation of capital or the implementation of complementary policies to enhance the efficiency and effectiveness of such expenditures in stimulating broader economic growth.
The analysis of the impact of capital expenditure on employment reveals several layers of economic influence. The direct impact, contributing to the creation or sustenance of 658 jobs, reflects the immediate employment generated by the capital projects. Indirectly, an additional 779 jobs are supported through the broader supply chain, while the induced impact results in 504 jobs, stemming from the increased spending by those directly and indirectly employed. In total, these effects amount to 1,942 jobs, representing a modest 0.2% growth in the city's overall employment opportunities when using 2023 as the base year. However, it is important to note that most of these jobs are likely temporary, primarily linked to the duration of the capital projects, with only a few permanent positions being created. Ideally, the capital expenditure should aim to contribute to a more substantial growth of at least 1% to 1.5% in the city’s employment levels to truly drive meaningful economic development.
Table 2: Estimated jobs Impact
The multiplier effect is calculated by dividing the total Impact on employment (1,942 jobs) by the total capital expenditure (R7,060 million). This gives a multiplier of approximately 0.275, indicating that for every R1 million spent, about 0 to 1 job are either created or sustained. While this demonstrates that capital expenditure does have a positive impact on employment, the relatively low multiplier reflects a limited return in terms of job creation. This suggests that while capital projects are valuable, there maybe a need for strategic adjustments or complementary initiatives to enhance their effectiveness in fostering more substantial and long-lasting employment growth within the city.
The total impact on households is R1,799 million, with low-income households receiving R254million, medium-income households R330 million, and high-income householdsR1,215 million. This distribution shows that high-income households are the primary beneficiaries of the economic activities generated by capital expenditure. Overall, the total impact contributes to a 0.7% growth in the City's household expenditure when using 2023 as the base year. However, this growth rate is still lower than the current inflation rate of 5% as of June2024, indicating that while there is some positive economic impact, it may not be sufficient to keep pace with rising costs of living, particularly for lower-income households.
Table 3: Estimated Impact on Households in R’millions
In terms of the multiplier effect, we calculate it by dividing the total impact on households (R1,490 million) by the total capital expenditure (R7,060million). This results in a multiplier of approximately 0.211, meaning that for every R1 million spent, household expenditure increases by about R0.211million. While this indicates that capital expenditure does have a positive impact on household spending, the relatively low multiplier suggests that the broader economic benefits of such investments are somewhat limited. This underscores the need for a more targeted approach to ensure that capital expenditures not only drive economic growth but also provide more substantial and equitable benefits across different income groups, particularly in the face of inflationary pressures.
Mkhizwana Water Treatment Works (WTW) - The project reached practical completion on 29 April 2024 as it was anticipated, and the project commissioning is in progress. It is anticipated that the final completion of the project will be completed on 1 August 2024.
Ogunjini Water Treatment Works (WTW) - The project experienced major delays and thus practical completion was not going to be achieved timeously. The contractor was falling behind in terms of the project plan and was not coping with the complexity of the work and the social issues on site which has resulted in the termination of contract. Completion of outstanding work has been executed via the Section.36 process. A new contractor has been appointed to complete the work. Construction started in March and with the expenditure peaking up, the full budget will be utilised.
Southern Aqueduct - The contractor was appointed in March and construction started soon after. It is anticipated that the full budget will be spent, and additional funds will be required for the current year. Additional funding was allocated during the final budget checking that was processed in June 2024.
Inlet main to Adams mission 6 - The full budget allocated for this project will be utilized in full this financial year, as the project construction has just commenced with the completion date expected to be October 2024. Construction going well on site and the percentage of completion is at 70%.
Adams 6 Reservoir –Construction is about 91 % complete. The practical completion was achieved on the 8th of February 2024 and the contractor is currently completing stags. The project is now complete awaiting final payments.
Hazelmere to Grange – The Project commenced on the 22nd of July 2022 (for 20 months period) and has reached its practical completion in the month of April; the contractor is currently completing snags. The construction to date is 94% complete and there are no challenges on site.
Install/Upgrade Reservoir inlet and outlet meter. There are two active contracts for this project. One is for the Western Region WS7268 and another one is for the South region. Contract for the central regionWS7171 is currently underway. Contract no WS7268 for the western region is scheduled to be completed in June 2024 due to contractual claims and contract no WS7171 will be completed in September 2024.
Hammersdale Waste-Water Treatment Works (WWTW)Expansion – The construction of this project commenced in the current month and there are currently no challenges on site even though there were savings declared before the adjustment budgets the project is inline with the project plan.
Northern Waste-Water Treatment (WWT) Rehabilitation- The project is planned with a short lead time due to its nature which entails refurbishing pumps and awarding the contract. The contractor started work onsite on 29 January 2024.
Hillcrest Glenwood RD Rehabilitation of storm-damaged infrastructure -The project has been in the construction stage since March 2024.
Mahatma Gandhi Emergency Works -This project has two projects within it. There is a short-term intervention that is being implemented by the operations department to fix the pump failure issues. The contract for the long-term intervention refurbishment of the pumpstation that is implemented
Transport Asset: The procurement of bulldozers is in its final stages, with the city fleet finalizing the implementation process. Delivery is expected by June 2024.
Brickwork’s project – The project is progressing well, and the entire allocated budget is expected to be fully utilized in the fourth quarter of the 2023/24 financial year.
The Oceans project- anticipated implementation of both Phase 1 and Phase 2, but due to difficulties in acquiring land for the Planned Temporary Facilities (PTF)sites, only Phase 1 (the public transport upgrade) will proceed. This change has led to a significant variance in the projected spending.
Ntshongweni project –This project has fully utilized the planned capital budget before the fiscal year-end.
The fourth quarter of 2023/24 showed a remarkable increase compared to the third quarter, leading to the achievement of 92% of the actual capital expenditure from the adjusted capital budget. The city’s capital expenditure has shown a positive contribution and played a crucial role in driving economic development. However, challenges related to the strategic allocation of the capital budget, project prioritization, insufficient funding, infrastructure maintenance, and project implementation continue to delay the efficiency and effectiveness of these expenditures in stimulating broader economic growth.
1. EThekwini Municipality Expenditure Unit, 2023: Section 71 Budget statement report for the month- https://www.durban.gov.za/pages/government/documents
2.Easy Data by Quantec, 2024; Regional Service Standardised Regional Household Income & Expenditure- https://www.easydata.co.za/dataset/RIES/
3.Easy Data by Quantec, 2024; Regional Service Standardised Regional Output & GVA at basic prices- https://www.easydata.co.za/dataset/RIES/
4.Conningarth Economists & Development Bank of South Africa, 2009; Social Accounting Matrix (SAM) for eThekwini, Manual Second Draft Final Report
5.Quarterly Labour Force Survey (QLFS), 2nd Quarter 2024:https://www.statssa.gov.za/?page_id=1854&PPN=P0211&SCH=73893
6.Durban Chamber of Commerce and Industry, UKZN, Macro Economic Research Unit, eThekwini Municipality, produced the Durban Business Confidence Index(BCI), second Quarter 2024 Report
Produced by The Durban EDGE Team of the
Policy, Strategy Innovation, and Research Department of
The Economic Development Unit of eThekwini Municipality
For more information, contact edge@durban.gov.za
Ref: Siphesihle.Thusi@durban.gov.za
Economic Research Advisor
Economic Information and Research
