PUB2603
EXAM PACK
2022-2025
EDITION
, PUB2603
EXAM PACK
2022-2025
QUESTIONS & ANSWERS
, PUB2603
MAY/JUNE 2022
QUESTION 1
With the use of examples from the public sector, discuss in detail the extent of
government intervention in infrastructure as a key tertiary and service sector of the
economy.
Government intervention in infrastructure, a crucial component of the tertiary and
service sector, is extensive and multifaceted. This intervention is driven by the
understanding that robust infrastructure is fundamental for economic growth, social
development, and the overall well-being of a nation. Governments typically intervene in
infrastructure due to market failures, the need for equitable access, and the strategic
importance of certain projects.
Reasons for Government Intervention in Infrastructure:
• Public Goods Characteristics: Many infrastructure projects, such as roads,
bridges, and public lighting, exhibit characteristics of public goods – non-
excludability and non-rivalry. It is difficult to prevent individuals from using them,
and one person's use does not diminish another's. Private companies may be
unwilling to invest in such projects due to the inability to charge for use, leading
to market failure. Governments step in to provide these essential services.
• Externalities: Infrastructure development often generates significant positive
externalities. For example, a new port or highway can boost regional trade,
create jobs, and attract investment, benefiting society beyond the direct users.
Without government intervention, the private sector might under-invest in projects
with large positive externalities because they cannot fully capture all the benefits.
• Natural Monopolies: Some infrastructure sectors, like water supply, electricity
grids, and railway networks, tend to be natural monopolies due to high fixed
, costs and economies of scale. It is inefficient to have multiple competing
providers. Governments often regulate or own these monopolies to prevent price
gouging and ensure universal access.
• Equity and Social Objectives: Governments aim to ensure equitable access to
essential services regardless of income or location. This often necessitates
investing in infrastructure in underserved areas or subsidizing services to make
them affordable for all citizens.
• Economic Development and Competitiveness: High-quality infrastructure is a
prerequisite for economic competitiveness. Efficient transportation networks,
reliable energy supply, and advanced communication systems attract foreign
direct investment, facilitate trade, and reduce business costs. Governments
strategically invest in infrastructure to enhance a nation's economic potential.
• National Security: Critical infrastructure, such as energy supply networks,
communication systems, and transportation hubs, is vital for national security.
Governments play a direct role in securing and maintaining these assets to
protect against disruptions and threats.
Forms and Examples of Government Intervention:
Government intervention in infrastructure takes various forms, ranging from direct
provision to regulation and partnerships:
• Direct Provision and Ownership:
o Transportation Networks: Governments often directly fund, build, and
maintain extensive road networks (e.g., national highways in South Africa
managed by SANRAL), railways (e.g., Transnet in South Africa), airports
(e.g., Airports Company South Africa - ACSA), and seaports. These are
critical for the movement of goods and people.
o Energy Infrastructure: State-owned enterprises frequently dominate the
electricity generation, transmission, and distribution sectors (e.g., Eskom
in South Africa) and sometimes oil and gas pipelines to ensure energy
security and widespread access.
EXAM PACK
2022-2025
EDITION
, PUB2603
EXAM PACK
2022-2025
QUESTIONS & ANSWERS
, PUB2603
MAY/JUNE 2022
QUESTION 1
With the use of examples from the public sector, discuss in detail the extent of
government intervention in infrastructure as a key tertiary and service sector of the
economy.
Government intervention in infrastructure, a crucial component of the tertiary and
service sector, is extensive and multifaceted. This intervention is driven by the
understanding that robust infrastructure is fundamental for economic growth, social
development, and the overall well-being of a nation. Governments typically intervene in
infrastructure due to market failures, the need for equitable access, and the strategic
importance of certain projects.
Reasons for Government Intervention in Infrastructure:
• Public Goods Characteristics: Many infrastructure projects, such as roads,
bridges, and public lighting, exhibit characteristics of public goods – non-
excludability and non-rivalry. It is difficult to prevent individuals from using them,
and one person's use does not diminish another's. Private companies may be
unwilling to invest in such projects due to the inability to charge for use, leading
to market failure. Governments step in to provide these essential services.
• Externalities: Infrastructure development often generates significant positive
externalities. For example, a new port or highway can boost regional trade,
create jobs, and attract investment, benefiting society beyond the direct users.
Without government intervention, the private sector might under-invest in projects
with large positive externalities because they cannot fully capture all the benefits.
• Natural Monopolies: Some infrastructure sectors, like water supply, electricity
grids, and railway networks, tend to be natural monopolies due to high fixed
, costs and economies of scale. It is inefficient to have multiple competing
providers. Governments often regulate or own these monopolies to prevent price
gouging and ensure universal access.
• Equity and Social Objectives: Governments aim to ensure equitable access to
essential services regardless of income or location. This often necessitates
investing in infrastructure in underserved areas or subsidizing services to make
them affordable for all citizens.
• Economic Development and Competitiveness: High-quality infrastructure is a
prerequisite for economic competitiveness. Efficient transportation networks,
reliable energy supply, and advanced communication systems attract foreign
direct investment, facilitate trade, and reduce business costs. Governments
strategically invest in infrastructure to enhance a nation's economic potential.
• National Security: Critical infrastructure, such as energy supply networks,
communication systems, and transportation hubs, is vital for national security.
Governments play a direct role in securing and maintaining these assets to
protect against disruptions and threats.
Forms and Examples of Government Intervention:
Government intervention in infrastructure takes various forms, ranging from direct
provision to regulation and partnerships:
• Direct Provision and Ownership:
o Transportation Networks: Governments often directly fund, build, and
maintain extensive road networks (e.g., national highways in South Africa
managed by SANRAL), railways (e.g., Transnet in South Africa), airports
(e.g., Airports Company South Africa - ACSA), and seaports. These are
critical for the movement of goods and people.
o Energy Infrastructure: State-owned enterprises frequently dominate the
electricity generation, transmission, and distribution sectors (e.g., Eskom
in South Africa) and sometimes oil and gas pipelines to ensure energy
security and widespread access.
