The establishment of the Presidential Infrastructure Coordinating Commission (PICC), and the subsequent lamenting of the pace of infrastructure development as lagging behind what the country needs, has placed a demand on South Africans to embrace the process as a necessary economic tool. In Economic theory, infrastructure can positively impact on economic growth, in the following five ways:
· Infrastructure as a factor of production
Infrastructure may simply be regarded as a direct input into the production process, like the creation of Power generating plants to fuel more industrial process.
· Infrastructure as a complement to other factors
Infrastructure may be regarded as a complement to other inputs into the production process, in two senses. Firstly, improvements in infrastructure may lower the cost of production. Inadequate infrastructure creates a number of costs for firms, who may have to develop contingency plans against infrastructure failure or even build infrastructure themselves. Inadequate transport infrastructure, for example, incurs potentially massive costs for firms who must seek alternative means of transporting both inputs and finished goods. Conversely, good infrastructure generally raises the productivity of other inputs in the production process.
· Infrastructure as a stimulus to factor accumulation
In particular, infrastructure, in the form of schools, roads used to access schools and electricity provided to schools, is likely to be an important factor in the human capital production function and it classified as Stimulus to factor accumulation.
· Infrastructure as a stimulus to aggregate demand
Large infrastructure projects typically involve significant expenditure during construction and potentially also during maintenance operations, increasing aggregate demand. Governments have, for example, often used large-scale infrastructure projects as stimulus policies during recessions or in order to achieve particular growth targets. E.g 2010 Soccer World Cup.
· Infrastructure as a tool of industrial policy
The last channel focuses on the potential for infrastructure spending by government to act as a tool of industrial policy. Government might attempt to activate this channel by investing in specific infrastructure projects with the intention of guiding private-sector investment decisions. A road construction project in a rural area may be intended to facilitate integration of that area into the regional economy and hence promote private sector investment and economic growth. This thinking has been a key element of the rationale behind the Maputo Corridor and the Coega Development Corporation.
