South Africa on Wednesday announced a three-year plan of spending more than 1 trillion rand (about 54.5 billion U.S. dollars) on public infrastructure to drive economic growth.

South African Minister of Finance Enoch Godongwana made the announcement while presenting the 2025 budget review to parliament and delivering his annual budget speech in Cape Town, the country's legislative capital.

Godongwana outlined the government's spending priorities after the budget was postponed by three weeks due to internal disagreements over a proposed value-added tax (VAT) hike.

"Infrastructure is a key pillar of our growth strategy. It is the bedrock of economic development, a key source of jobs, and an avenue to scale up service delivery," said Godongwana.

"This budget reflects that understanding. Allocations toward capital payments are the fastest-growing area of spending by economic classification. Public infrastructure spending over the next three years will amount to more than 1 trillion rand," he said.

According to him, the allocation of funding for infrastructure will be directed toward three main sectors, including 402 billion rand for transport and logistics, 219.2 billion rand for energy infrastructure, and 156.3 billion rand for water and sanitation.

The minister highlighted some of the key projects that will be underway. "In transport, the South African National Roads Agency will spend 100 billion rand over the medium term to keep the national road network in good condition," Godongwana said.

Meanwhile, the Passenger Rail Agency of South Africa has been provisionally allocated 19.2 billion rand for critical signaling upgrades. In the water sector, several large-scale dam projects are being accelerated or are approaching the construction phase, he said.

In his speech, Godongwana also said that the South African economy has stagnated for over a decade, with GDP growth averaging less than 2 percent, far below what is needed to meet the country's expanding demands.

"In 2024, the economy grew by only 0.6 percent," he said, adding that the GDP growth "is projected to average 1.8 percent" over the medium term, referring to the three years from 2025 to 2027.

According to Godongwana, consolidated government spending, excluding interest payments, is set to increase from 2.4 trillion rand in the 2024/25 financial year to 2.83 trillion rand in 2027/28.

While a budget primary surplus of 0.5 percent of GDP is expected to be achieved in 2024/25 and grow to 0.9 percent in 2025/26, he said the government debt will stabilize at 76.2 percent of GDP in 2025/26, and the consolidated budget deficit will narrow to 3.5 percent by 2027/28.

As for the controversial VAT hike, the minister said that the government has proposed a marginal increase of 0.5 percentage point in 2025/26 and another 0.5 percentage point in the following year. "This will bring the VAT rate to 16 percent by the 2026/27 financial year," he said.

He added that persistent spending pressures in health, education, transport, and security necessitate the proposed increase to generate the required revenue.

"These measures will raise 28 billion rand in additional revenue in 2025/26 and 14.5 billion rand in 2026/27," said Godongwana.

He said that the government had thoroughly examined alternatives to raising the VAT rate, including increases to corporate and personal income taxes, but found these would generate less revenue and could pose a risk to investment, job creation, and economic growth.

"This decision was not made lightly. No minister of finance is ever happy to increase taxes. We are aware of the fact that a lower overall tax burden can help to increase investment and job creation and also unlock household spending power," Godongwana said.

"We have, however, had to balance this knowledge against the very real and pressing service delivery needs that are vital to our developmental goals and cannot be further postponed," he added.