Funding for roads in South Africa: Understanding the principles of fair and efficient road user charges

Abstract

Roads support economic development and is one of the key economic infrastructures of South Africa. Funding for roads has been, and continues to be, controversial and faced with a multitude of challenges. The fuel levy, for instance, has for decades been the basis of road funding, but in recent years it has experienced declining effectiveness and efficiency. Both South African and international policy documents frequently propose the so-called user-pay principle to be adopted to fund land transport. It is frequently understood that the user-pay will imply sufficient revenue to sustain the road user, however this assumption is not entirely correct. In this paper the importance of roads to the economy is introduced which underscores the importance of an adequate and stable revenue source for road construction, maintenance and upgrade. The paper does emphasize that sufficient and adequate roads and hence funding is, however, not sufficient to support economic development. The paper defines and discuss the user-pay principle and the importance of charging road users efficient prices for road use. In transport, the term marginal social costs, sometimes also referred to as the principle of short run marginal social costs describes efficient road use prices. The paper discuss this concept as a road use charge. The technical difficulties of implementing marginal social cost is presented which are often the reason why alternative pricing regimes, such as average cost or long run marginal costs are adopted in practice. The paper concludes with a discussion on the way forward for South Africa.

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