Impact of Transportation on Economic Growth
Transport infrastructure has played a pivotal role in economic development over the last century. World Bank-backed road projects between 1974-1982 and 1983-1992 yielded economic rates of return of 20% and 29%, respectively, which are among the highest in any form of infrastructure (Ross and Townshend, 2018). In the advent of globalization, an economy’s competitive advantage is dependent on the efficiency with which it transports people and goods. Transport infrastructure allows both local and international businesses to establish themselves in specific environments and access goods through effective distribution channels and an easily accessible consumer base (Ejiogu et al., 2020). Roads and railways boost economies by cutting travel and transportation costs thus facilitating the entry of new businesses into the economy. In addition, roads are essential for industrial development, which is essential for the production of goods and services that drive economic growth. The enhancement of transportation infrastructure facilitates economic expansion by positively influencing production processes (Wu, Zhang and Xu, 2021). South Africa’s economic growth is inextricably linked to the development of transport infrastructure, which forms the bedrock for commerce and associated commercial activities.
Road and Rail Systems in South Africa
Land transport is one of the most important means through which South Africa moves its goods and services. Highway and rail transport systems are the most common means through which people and goods travel in many regions of the world (Sun et al., 2018). It is worth noting that the sector accounted for approximately 5% of total GDP in 2016 and employed 2.5% of the nation’s workforce (Merven, Hartley and Ahjum, 2019). Land freight, in particular, accounts for 90% of all income earned from land transport, while the rest is accounted for by passenger transportation (Merven, Hartley and Ahjum, 2019). While both rail and road transport is commonly used in South Africa, many industries, with the exception of the mining sector, prefer road transport.
The preference for roads is informed by the fact that the medium is reliable, accessible, affordable, and efficient. South Africa’s Transport Department notes that the country has a total of 535000 kilometers of roads, with 168000 kilometers accounting for urban roads while 366,872 kilometers are categorized as non-urban (South African Government, 2018). In 2018, South Africa’s Passenger Rail Agency focused on funding the acquisition of 163 new trainsets, 8 locomotives, and the refurbishment of over 1000 train coaches in 24 train stations (South African Government, 2018). The initiative was designed to improve the nation’s rail transport system by enhancing efficiency and reliability. The aforementioned transport modalities are an important element in a country’s economic development matrix.
Public transport is an essential part of life in South Africa. It is estimated that there are 200,000 taxis in South Africa in an industry that generates approximately R40 billion annually in addition to creating 300,000 direct and indirect employment opportunities (South African Government, 2018). South Africa’s 2018 General Household Survey indicated that the private car was the most common means of transportation to work at 33.7%, followed by taxis at 24% and walking at 20.4% (South African Government, 2018). In addition, 36.7% of the country’s households had at least one individual that used public transport (South African Government, 2018). The aforementioned statistics demonstrate the extent to which transport infrastructure is intertwined with both economic and non-economic activities in South Africa.
Analysis
Transport infrastructure impacts economic growth by virtue of the fact that transportation is a direct input in the production process. The Council for Scientific and Industrial Research emphasized South Africa’s transport dependence by stipulating that transport accounted for 61.6% of total logistics costs compared to a global average of 39% in 2013 (Ross and Townshend, 2018). The National Department of Transport highlights the fact that 6.3% of the total cost of transport was traced to agriculture, 5.2% to mining, 4.6% to manufacturing, 4.5% to community services, and 2.6% to construction. These percentages illustrate the fact that an efficient transport system would lower operational costs thus increasing profitability and economic growth.
Transport infrastructure has a direct impact on a country’s economic development. The endogenous growth model posits that a nation’s economic growth is inherently dependent on internal rather than external factors (Hanyurwumutima and Gumede, 2021). Therefore, the development of factors that promote production, such as transport, is essential for economic success. While the impact of transport infrastructure in developing nations is seldom straightforward, evidence suggests that developing economies are likely to benefit from investments in roads and railway networks. By using data collected between 1960 and 2009, researchers have demonstrated that South Africa has benefitted from investments in the transport sector (Hanyurwumutima and Gumede, 2021). The impact of roads on economic development is further supported by Ekeocha, Ogbuabor and Orji (2022) who note that transport infrastructure developments have significantly impacted economic growth in Africa.
Transportation is an element of physical capital that ensures the mobility and equal distribution of human capital. In addition, roads and rail facilitate the distribution of wealth in a given geographic location in the form of factors of production such as entrepreneurship, capital, and labor (Ejiogu et al., 2020). In addition, effective transportation encourages the geographic concentration of economic resources and widens the market for goods and services. Transport infrastructure has a direct impact on aggregate demand in view of the fact that it enhances the demand for intermediate goods from other sectors thus stimulating multiplier effects in the economy resulting in growth.
Enhanced transport systems are likely to lower the cost of production. The reduced transit times and expenses associated with efficient road and rail networks are beneficial to a country’s economy (Welsh Assembly Government, 2020). In addition, the availability of efficient road and rail networks has a direct impact on inward investment. The choice of business location is immensely dependent on the availability of access roads or railways. The enhancement of a region’s transport system positively impacts its appeal to both foreign and local investors. The new businesses are likely to facilitate the re-organization of land use.
The creation of a wide labor catchment area is one of the primary objectives of the prioritization of transportation infrastructure development. It is worth pointing out that the deficit in skilled labor is a significant contributor to South Africa’s high level of structural unemployment (Ross and Townshend, 2018). Therefore, improved road and rail networks enhance the country’s skill profile by reducing the number of job seekers that are unable to access the labor market.
The transport sector’s efficiency in the South African context is subject to threshold effects, given the fact that there are some network challenges. While it has been shown that an efficient transport network positively influences economic growth, these benefits last to a specific point beyond which additional transport investment has a limited economic impact. Infrastructure accumulation limits the benefits associated with accessibility enhancement. It is also worth pointing out that the relationship between transport infrastructure and economic development is non-linear. Therefore, the effects of improved infrastructure may vary from one region to another and are influenced by other factors such as inefficient funding and legislative loopholes.
While roads are immensely beneficial to a country’s economy, there are scenarios when they may hinder economic growth. For instance, in situations where a road’s construction and maintenance costs supersede its contribution to economic growth, transport infrastructure crowds out private investment (Ross and Townshend, 2018). In addition, disproportionate investment in road and rail networks increases vehicle operating costs, leads to the reduced lifespan of private and public capital, and leads to the imposition of private capital adjustment costs. It should also be noted that poorly maintained transport infrastructure stops the development of human capital while reducing the degree of labor productivity. The aforementioned risks are present in the South African context, given its high proportion of low-volume gravel roads, inadequate service levels, and dilapidated road conditions (Ross and Townshend, 2018). Therefore, it is wise to evaluate the impact of road and rail systems alongside the effects of inefficient expenditure in the context of a spatial economy plagued by a declining rail sector.
South Africa has since realized the association between economic growth and transport efficiency, as evidenced by significant policy changes and investment strategies. For instance, the government’s strategic plan and the Medium Term Strategic Framework are designed to facilitate economic growth at the metro level by facilitating the utilization of transport infrastructure (Hanyurwumutima and Gumede, 2021). The National Planning Commission has expressed fears that South Africa is trapped in a low-growth middle-income cycle as a result of stagnated growth at middle-income levels.
Recommendations
It is recommended that the government builds and maintains roads and railway networks in order to fast-track its progress to a high-income economy. Such a strategy will eliminate uncompetitive goods and services that are the result of high transportation costs, low productivity of labor, and the need to maintain high inventories in various organizations (Ross and Townshend, 2018). In addition, the government should increase the marginal productivity of private inputs to ensure that transport infrastructure investments raise the rate of return on private capital thus creating the appropriate conditions for crowding in private investment. Policymakers should prioritize the development and implementation of policies that address challenges associated with inefficient funding in transport infrastructure investments. It is critical to ensure that assigned resources are used to maintain and operationalize the country’s roads and railways. The government must prioritize the maintenance and support of transport infrastructure installments in order to facilitate economic growth.
Conclusion
Road and rail transport systems are inextricably linked to economic growth. Transport systems ensure the mobility and equal distribution of human capital. In addition, they lower the cost of production, prompt the re-organization of land use, and create wide labor catchment areas. By improving the competitive advantage of a nation’s businesses and directly impacting inward investment, transport infrastructure boosts economic growth. South Africa’s economic development is tied to its ability to develop and maintain the efficiency of its road and railway systems.
Reference List
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