Last week’s Sunday Times Top 100 Companies’ Awards were a celebration of the resilient performance of the listed companies in South Africa even in the toughest of times; through the Covid years, load-shedding and geopolitical tensions.
Their resilience not only enhances shareholder returns but contributes to the competitiveness and growth of South Africa’s equity markets. This enhances the country’s position as a preferred investment destination, thus contributing to economic growth, which is necessary for reducing unemployment.
It is a well-known fact that South Africa has an economic growth problem.
Private companies can play a more pivotal role in growing the economy. Yet these companies cannot do this alone. The government needs to create an enabling environment for their continued growth.
How?
First, the collective act of establishing a multiparty government — the government of national unity — seems to have been well received, given the positive market sentiment as reflected in the financial indicators. We have seen a downward trend in bond yields, which reflects an improvement in our credit profile as a country, which again makes our equity markets competitive.
The stock market has also performed reasonably well. The recent S&P upgrade of South Africa's credit outlook to positive is an assessment that reflects optimism about political stability and reform-driven growth.
Second, the maintenance of the macroeconomic policy stance to realise stable and low inflation and sustainable public debt levels. When inflation is low, stable and predictable, it reduces uncertainty and helps people and companies to better plan their savings, spending and investment. That helps the economy to grow, in turn creating jobs and prosperity.
When the public debt is at sustainable levels, it reduces the sovereign risk premium, thus making the South African jurisdiction more attractive for investment.
Third, the government-led reform of our economy to address the binding constraints that have limited its growth potential. Over the past few years, the government has implemented far-reaching economic reforms through Operation Vulindlela, focused primarily on modernising network industries to address the underlying causes of low economic growth and improve the competitiveness of the economy.
This work has been supported by an unprecedented partnership between government and business through Business4South Africa, which has mobilised resources behind a joint effort to address the key focus areas of energy, logistics, crime and corruption.
Business4SA and the government have agreed that we will also focus on SMMEs and employment as new areas of collaboration. The willingness of business to work together with the government to overcome the most important challenges is a key driver of renewed investor confidence.
There is an urgent need to have more incentives and financial structures that will make private sector investment in infrastructure more attractive
Phase II of Operation Vulindlela will continue with the reforms that began in phase I. The second phase will introduce new reforms to address both long-standing and emerging constraints in local government, spatial inequality and digital infrastructure.
Fourth, there is a need to accelerate the investment in infrastructure, which is critical for economic growth. However, there is a huge infrastructure financing gap. The private sector will need to play a significant role to fill this gap given the fiscal constraints we face.
The key question is — how should the government enable private capital to flow into the infrastructure space within South Africa?
It must continue to respect the role played by fund managers as they seek to generate returns for asset owners. We continue to respect their discretionary mandate in selecting asset classes that deliver the best returns for asset owners.
There is an urgent need to have more incentives and financial structures that will make private sector investment in infrastructure more attractive. Several initiatives to crowd in private sector infrastructure investment have been introduced.
Regulations have been revised to simplify the rules governing public-private partnerships (PPPs). This includes a differentiated and simplified approach for smaller projects, reducing administrative burdens and streamlining mechanisms for unsolicited proposals. These changes will make it easier for the private sector to participate in infrastructure projects.
A credit guarantee vehicle (CGV) is being introduced to systematically de-risk large government infrastructure programmes without the need for sovereign guarantees. The initial pilot of this CGV will be on transmission infrastructure to de-risk the offtaker risks that will be faced by the private sector when making investments linked to the National Transmission Company South Africa (NTCSA).
Once established and fully understood by the market, the plan is to extend the CGV to other infrastructure programmes, such as water or electricity distribution in municipalities.
The government intends to issue infrastructure instruments such as bonds, bilateral transactions and project finance to crowd in private capital. These instruments will be in the listed and unlisted space.
The role of the PIC in infrastructure
Rather than being viewed as a “bailout” institution, the Public Investment Corporation (PIC) is positioned as an anchor investor in South Africa’s infrastructure landscape, acting as a catalyst to attract other local and foreign institutional investors. Its involvement is critical in ensuring the long-term sustainability and success of these infrastructure projects.
The PIC has been instrumental in supporting South Africa's infrastructure development through substantial investments in the bond market, particularly in state-owned enterprises (SOEs). These investments have been pivotal in enabling these entities to finance critical infrastructure projects, thereby contributing to the nation's economic growth and development. The PIC has made significant investments in renewable energy projects to diversify South Africa's energy mix, enhance energy security, and reduce carbon emissions.
Investors with a long-term perspective, such as those managing retirement funds, frequently experience strong gains from sustainable investments.
Examining successful companies, such as those consistently ranked among the Top 100, reveals a commonality: the genuine integration of sustainable practices into their core operations, which positions them for enduring growth and resilience.
It is therefore important to recognise that the relationship between sustainability and returns is not mutually exclusive. Rather, it is complementary when strategically integrated within the core of your investment philosophy.
• Masondo is deputy minister of finance and chair of the PIC
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