Finance institutions have made firm commitments running into “tens of billions of rand” for a host of planned infrastructure projects in South Africa.
Dr Kgosientsho Ramokgopa, head of investment and infrastructure in the Office of The Presidency, said on Tuesday this is money that will be coming into the country “so we are not relying on the fiscus to ensure we are able to get these projects going”.
Speaking during the inaugural Sustainable Infrastructure Development Symposium of South Africa (Sidssa), which was livestreamed on Moneyweb, Ramokgopa said the commitments were made at a “pitching session” on May 28-29 where the government unveiled 93 projects to an audience of 60 financing institutions represented by more than 210 delegates.
He said the government is showcasing 276 projects at Sidssa, 88 of which are at post-feasibility stage and ready for financial investment.
He noted that one of the distinguishing features of these projects is that they have a cost recovery element or revenue stream because there are a lot of good projects in the country competing for resources in the fiscus and crowding out social projects.
Packaged for participation
“It’s important that whatever is left of the fiscal headspace is directed to social projects and those commercial projects are packaged in a manner that we are able to invite private sector participation.
“We chose to go the sustainable route because there is a big pool of liquidity that is directed at funding sustainable projects, and this is cheap money. So we don’t have to always have to look at the fiscus to support the development of these projects,” he said.
President Cyril Ramaphosa stressed that the severe damage caused by the Covid-19 pandemic, and the damage it continues to cause, has not diminished the government’s determination to drive an ambitious and sustainable infrastructure development programme.
“To the contrary, the coronavirus pandemic has made infrastructure investment even more compelling, even more important and even more urgent,” he said.
“That is why we have placed infrastructure at the centre of the stimulus our economy needs to achieve a sustainable recovery.”
Ramaphosa said that even before the pandemic, South Africa’s investment in infrastructure had been declining for several years, which among other things, had caused great hardship for the construction and related industries.
He said the coronavirus has had a particularly severe impact on infrastructure service providers, both for projects under development and under implementation and, as a result of the lockdown, they have seen a drop in demand and revenue.
Ramaphosa said buyers of infrastructure services have delayed procurement of new projects or cancelled projects while lenders and investors, in turn, are revisiting their decision to invest in infrastructure projects that were deemed bankable prior to the pandemic.
“The cost of some inputs has increased while some inputs are, at least temporarily, not available due to disruptions in national, regional and global supply chains.
“Lower revenues, higher costs and non-payment has resulted in layoffs, financial losses and cash shortages,” he said.
“This requires that we not only push ahead to revive infrastructure investment, but that we rapidly move to increase the scale of our ambitions.”
Ramaphosa said advanced and developing economies globally are looking to infrastructure as one of the key sectors to stimulate economic recovery efforts from the impact of Covid-19, adding that infrastructure investment provides both short and long term economic benefits.
He said in the short term it creates jobs and economic activity as roads, bridges, hospitals, schools, power plants and much else are built, and gets construction and related services companies back to work, inducing them to hire staff and expand capacity.
“As construction services are procured, government can assess project proposals on the employment impact to ensure the job creation impact is maximised.
“Shovel-ready projects that have been fully developed for implementation will be the priority, ensuring ground is broken as soon as possible.
“Infrastructure investment is also an important signal to the economy that investment and expansion is happening, which improves consumer and business confidence, leading to increased economic activity,” he said.
Ramaphosa said infrastructure investment in the long run also increases the capacity of the economy, reducing the cost of transport and increasing the capacity and reliability of key services like electricity and municipal services.
This enables more efficient supply chains, increases productivity and drives sustainable economic growth and a faster pace of job creation, he said.
Ramaphosa said government is looking at policies that facilitate economic recovery, such as introducing stimulus packages that boost government’s infrastructure spending, and creating financing instruments that provide liquidity such as bridge financing or debt restructuring, as well as guarantee products and funds.
Development finance institutions are expected to support the creation of these instruments, he said.
Ramaphosa said government will further encourage proposals from private developers for sustainable and resilient infrastructure projects, offering a clear and expedited path for their approval.
“We will seek to prioritise proposals for infrastructure sectors that are important to economic recovery and resilience, including energy, transportation, health care and digital infrastructure,” he said.
Agriculture is also included due to its employment absorption capacity while the upstream agro-processing opportunities it offers could lead to revitalisation of rural economies, he said.
Ramaphosa said integrated human settlements is another area of focus.
“As we work at strengthening this new-found relationship with the private sector, government will work towards addressing investment policy uncertainties, accelerating SOE [state-owned enterprise] reforms, and formulating necessary infrastructure policy reforms.
“Particular attention will be given to enhancing state capacity and skills improvement,” he said.
Ramaphosa added that government is reconfiguring the public sector infrastructure ecosystem to allow for the seamless consideration and packaging of projects.
He said the creation of a consistent and predictable project assessment methodology across all of government and the establishment of a single widow of entry for project preparation and packaging is key to their success.
Working with the private sector, the government will also invest in the creation of both technical and financial engineering capacity in the state, he said.
Public Works and Infrastructure minister Patricia de Lille said the new methodology of planning and project preparation, known as the Sustainable Infrastructure Development System (Sids), had been developed following extensive consultation to ensure that infrastructure development is not merely undertaken in a transactional manner, which is where the government has fallen short for so many years.
De Lille said the methodology relates to the identification, consideration, evaluation, approval and implementation of workable infrastructure to ensure bankability.
She said such evaluation is necessary to ensure the projects are functional from a financial, inter-sectoral and needs perspective.
Ramokgopa said the Sids marks a new way on how government wants to deal with infrastructure, adding “we think the sky’s the limit”.