Minister of Finance Enoch Godongwana has admitted that the state would struggle to fund all South Africa’s infrastructure needs from state coffers, urging the private sector and foreign investors to work with the government to develop new capital-raising solutions.
Speaking at the Brics Infrastructure Investment Symposium on Thursday, he said: “It is well known that despite increased efforts to mobilise private investment for infrastructure in emerging markets, the uptake has been relatively slow. Thus, the symposium is focused on measures needed to promote the uptake of private capital in achieving the infrastructure agendas and plans of the Brics countries.”
Godongwana said South Africa hoped to take advantage of the extensive knowledge base in Brics — from government officials, industry experts, academics, development banks and other finance institutions to increase its access to capital for infrastructure.
“This is a testament to the African proverb in the book by Victoria Odoi-Atsem that says ‘If you want to go fast, go alone, if you want to go far, go together’. Of course, we want to go together but we must go fast because there are significant opportunity costs associated with the status quo,” Godongwana said.
A lot of money is floating around, but how this is allocated is a question that needs to be looked at
— Mamiko Yokoi-Arai, OECD deputy head of financial markets division
The virtual event was attended by representatives of the G20, the Organisation for Economic Co-operation and Development (OECD) and finance institutions from other Brics countries.
Godongwana’s remarks came a week after the National Treasury released a memorandum of guidelines around the government’s latest cost containment proposals.
While complete capital projects, award projects and invoiced projects are exempt from the guidelines, accounting officers are urged to consider postponing proposed capital projects to March 31 next year.
Explaining the cost containment measures to MPs in parliament last month, Godongwana said: “The economic growth outlook has worsened significantly relative to expectations outlined in the 2023 budget — given the impact of more intense load-shedding and freight and port logistics constraints, among other things.”
The event came after the IMF warned that the world is entering a period of historic low growth and downside risks. Global growth is expected to slow from 3.4% in 2022 to 2.8% in 2023 before rising to 3% in 2024. Emerging market growth is expected to slow down from 4% in 2022 to 3.9% in 2023 before rising to 4.2% in 2024.
According to the National Development Plan 10-year Review, the fraught global economic environment in South Africa was made worse by unreliable power supply and rail constraints, which undermined investor appetite.
“The decline of freight rail operations and port congestion [have] hindered the possibility of increased economic activity. The poor performance of Transnet Freight Rail is evidenced by the declining volumes over the years, which has harmed the country’s financial performance.
Forecast global growth for 2023.
— IN NUMBERS: 2.8%
“Although the entity carried around 226-million tons per annum in 2018, that figure dipped to 173-million tons in 2021, signaling the first time that it dipped below the 180-million ton mark,” the review said.
The review said it was critical to augment infrastructure through targeted action plans to address infrastructure constraints, especially electricity, water, digital processes and rail.
Also speaking at the symposium, Henri Blas, the chief content officer at G20 Global Infrastructure Hub, said while public sector investment in infrastructure was generally decreasing, progress was being made in industrial, transport and housing developments.
“We look at solutions for sustainability and resilience. We also need to deploy resources to scale up our solutions. The outcome and sometimes efficiency and cost efficiency in the long term can sometimes be very significant.”
Blas said public infrastructure trends were “not exactly great”, but that several renewable projects attracting capital globally have seen an increase since 2019.
OECD deputy head of the financial markets division Mamiko Yokoi-Arai said while global inflation levels are putting pressure on state and business appetite to invest in infrastructure, there was still a lot of money in pension funds.
“A lot of money is floating around, but how this is allocated is a question that needs to be looked at. It doesn’t mean that OECD countries do have large pension funds. Countries like Luxembourg have smaller funds than countries like China and Namibia.”
Yokoi-Arai said among all global destinations for foreign investment, emerging Asian economies were the leading destination for pension funds, followed by Latin America and then Africa and the Middle East.
“Pension funds are more home-biased when it comes to investing. Bigger funds have more funds at their disposal for research, making it easier for them to look across the fund for investments. Renewable energy and energy in general are the most popular items to invest in for funds,” she said.
Association for Savings and Investments South Africa CEO Busisa Jiya said there was a clear need for more infrastructure in South Africa, and that institutional investors should take the opportunity to invest in water infrastructure.
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