The government’s infrastructure ambitions are going to be “a remedy rather than a curse” in SA’s efforts to reignite investment in the economy and claw back growth after the ravages of the Covid-19 crisis.
And, unlike previous state commitments on infrastructure, dogged by delays and capacity constraints, within the next 12 months SA could expect the development of projects that were well structured, bankable and ready for investment, Mohale Rakgate, the new head of the Infrastructure Fund told Business Day.
Rakgate took up his role at the start of October after the August inking of a memorandum of understanding, establishing the fund, signed by the Treasury, the Development Bank of Southern Africa (DBSA) and Infrastructure SA (ISA), which falls under the department of public works and infrastructure
“Watch this space,” Rakgate told Business Day.
“We are moving very fast to institutionalise the fund, there is great urgency, and there should be physical evidence in the not too distant future.”
Infrastructure investment has become a rallying cry of President Cyril Ramaphosa’s administration, which was already facing a recession, dismal business confidence levels and rising joblessness before the crisis hit.
This focus is supported by social partners, notably big business, who have highlighted the need to essentially get SA building again.
With the arrival of the pandemic, and the government-instituted lockdown, SA’s GDP contracted 51% on an annualised basis in the second quarter, and the economy shed 2.2-million jobs. Gross fixed capital formation, an indicator of investment, was hit particularly hard, plunging almost 60% in the second quarter.
At the same time, private-sector firms and certain state-owned entities have had to re-examine capital expansion plans. This has raised questions about the extent to which companies can partner with the government on certain investment drives, when they are attempting to shore up their own balance sheets.
But Rakgate argued that “the moment we go out to the market with bankable projects that are well packaged and structured” there would be plenty of appetite.
His position is echoed by the Treasury, which previously told Business Day that the “biggest hurdle in infrastructure investment is the lack of a visible pipeline of good projects”.
SA’s local financial markets remain stable and institutional investors were looking “for good opportunities to lend and because of the long-term nature of infrastructure projects” that matched their requirements. The government had also committed to improving the financial viability of blended finance projects for example by providing support such as guarantees, it said.
The government record of delivering promised infrastructure deals has however been patchy at best, blighted by among other things capacity shortages and political inertia.
But Rakgate is adamant that this time it will be different. The programme was “at the centre of government” with the presidency leading the drive and creating the necessary capacity within the state, he said.
Through the creation of ISA, infrastructure development will be co-ordinated from one point, and address the fragmentation that has been the status quo. ISA will prioritise the projects and programmes the government wants to embark on, as well as develop a national infrastructure plan.
According to Rakgate, ISA will take the lead in identifying projects and sorting them into those that can be entirely funded by the government; those that require blended financing or investment from both the government and the private sector or international investors; and those that are purely commercial “where the government will not be required to contribute”.
Developing and packaging the projects requiring blended financing was where the infrastructure fund would come in, he said.
Another reason the government would this time deliver on its aims was the commitment of long-term funding from the Treasury he said, in the order of R100bn over 10 years or R10bn a year. Ultimately, the state hoped to unlock about R1-trillion in investments from the private sector.
One of the fund’s aims with these projects was “to crowd in more institutional investors such as pension funds and asset managers”, he said. To do this it was looking at aggregating the portfolio and then listing it in the form of bonds.
In July, the government gazetted more than 50 projects in areas including water and sanitation, energy, and transport.
Rakgate said that while it might be too early to provide details on which of these projects would find their way to the fund, some of the large scale water projects on the list “lend themselves to blended financing”. Many of the projects on this list would be projects the fund could support, “more so because they are already prepared and lots of early stage development has been done”, he said.
Even as the work of setting up the fund is under way, the DBSA’s team has been in talks with ISA and the Treasury to identify projects that can be fed to the fund.
“Expectations are within the next 12 months we should begin to see programmes start rolling out,” he said.
Rakgate said officials had been in talks with organisations such as the Association for Savings and Investment SA, the Banking Association SA as well as development finance institutions and other multilateral agencies, and taking their views on board as the government infrastructure plans developed.
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