Concern that DBSA will divert infrastructure funds to SAA

Warnings of catastrophic consequences for the economy if decline in construction value is not arrested.
Trade union is disappointed that the state-owned bank would rather put money into a failing SOE instead of focusing on projects to help the majority of people. Image: Shutterstock

Concern has been expressed by Consulting Engineers South Africa (Cesa) about the R3.5 billion bailout to South African Airways (SAA) by the Development Bank of Southern Africa (DBSA).

Read: SAA receives R3.5bn from DBSA

Cesa’s newly-elected president Sugen Pillay said on Wednesday there is very little detail about the bailout at the moment, but it does concern Cesa that some of the funding that may have been earmarked for infrastructure development “may now be diverted for this bailout”.

Trade union Uasa (formerly United Association of SA) is one of several other entities critical of the DBSA’s bailout.

Uasa spokesperson Stanford Mazhindu stressed that state-owned DBSA, in its own words, is responsible for infrastructure development in Southern African Development Community countries and its funds are not meant to rescue failed state-owned entities (SOEs).

“We are disappointed that instead of focusing their attention on something that could help the majority of Africans, such as building a hospital or improving current hospitals and roads, the DBSA would rather put that money in a failing SOE with little to no chance of getting a return on their investment,” he said.

However, Pillay said Cesa is cautiously optimistic that the Infrastructure Fund will start to gear into action so that funding for project preparation can be unlocked.

He said Cesa has had initial discussions with Dr Sean Phillips, who heads up the fund, and continues to engage with Phillips’s office so that as an industry they contribute to unlocking this fund.

“We’re calling for an environment to be created so these projects start to flow,” he said.

President Cyril Ramaphosa announced the establishment of a National Infrastructure Fund in September 2018 as part of the government’s economic stimulus and recovery plan.

Read: Ramaphosa’s infrastructure fund must be geared through project finance

The DBSA has been given responsibility for implementing the fund.

Read: Cosatu want private pensions to fund infrastructure

A cabinet statement in October last year reported that government has set aside R100 billion over 10 years for the fund and is looking forward to working with private investors and international financial institutions to leverage finance for the country’s infrastructure development.

Pillay said the key issue that has led to the decimation of the construction sector is the lack of opportunities, with delayed payments to contractors and consulting engineers for completed and accepted work compounding the problem.

He said this has resulted in the market capitalisation of related listed companies falling to an all-time low, with most currently in business rescue, while medium-sized and smaller contractors are not faring any better.

Pillay said the reason that so many contractors find themselves in financial distress is that a project pipeline has not been forthcoming.

“If one analyses the construction value chain, the contractors as the implementers are the first group to be affected. The next group that are already being impacted are the suppliers of materials and the plant and equipment suppliers.

“The next group in the value chain that are also already being affected will be the consulting engineers and other built environment professionals.

“Thus, if this decline in the construction value chain is not arrested as a matter of urgency, the entire value chain will be decimated within a very short space of time.

“The consequences for the economy and country will be catastrophic,” he said.

Construction market intelligence firm Industry Insight reported last week there has been a notable increase in tender activity during the last few quarters, despite awards for higher-value projects remaining sluggish in the fourth quarter of 2019.

David Metelerkamp, a senior economist at Industry Insight, said this provides some hope for improved levels of activity in 2020.

Metelerkamp said overall tender activity for Grade 9 projects, the highest value projects, increased by 38% year on year in the fourth quarter of last year and an encouraging 65% for 2019 compared with 2018.

He said overall nominal estimated tender values increased by 15% in the fourth quarter compared with the previous quarter and up by an encouraging 66.1% year on year.

“This more robust increase follows a similar annual increase in the second and third quarters of 2019 and a moderate increase of 1.8% year on year in the first quarter,” he said.

Metelerkamp said the value of road tenders increased by 32% and for water projects by 17%.

He said the rise in tender activity in the water sector is encouraging, provided these projects filter through to execution “but is not near enough to effectively deal with the growing water crisis in the country, which could make the electricity crisis seem small”.

Chris Campbell, CEO of Cesa, confirmed that demand from the SA National Road Agency (Sanral) has definitely started picking up.

While it’s nowhere near Sanral’s own Vision 2030, Campbell said it is certainly higher than the year before.

“But you must bear in mind a lot of those tenders are in the maintenance side and not capital projects. Some of the capital projects have ground to a halt, and there are others on the cards,” he said.

The increase in Sanral tender activity is in line with the agency’s announcement in August last year that it will issue major road construction tenders to the value of more than R40 billion to the construction sector over the next two to three years.

 

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SAA is a threat to the well being of this country. It must be closed down. Only the users can do it by a mass boycott.

Closing SAA is a threat to the wellbeing of cadres’ pockets.

CR and his troop can not even spell development.

Like SAA this DBSA must just be shut down.

WHAT DEVELOPMENT IS THE R3.5 BILLION SPENT ON? NOTHING!!!!!

May as well change the name to RBSA…. Rescue Bank of Southern Africa

Agreed….but maybe Reckless Bank is SA would be more appropriate

The ANC is frantically trying to prevent a tsunami of catastrophic cross-defaults of debt that will begin with the earthquake of an SAA bankruptcy, and flatten all SOE’s along the way until it engulfs Luthuli House. The pressure has been building at the faultlines for a long time. The rating agencies have been warning that the tsunami is imminent. This massive movement of money from the DBSA to SAA is how the tide pulls back, sucking liquidity towards the incoming tsunami before it rushes back to engulf everything.

This movement of liquidity into SAA is the final sign that the tsunami is about to strike. We better run for the high ground. This thing will engulf all SOEs and it will leave the state finances underwater.

In the infinite wisdom of Luthuli House, the tsunami will be considered the solution to the pending water crisis.

Sensei: three questions please: 1. How is this “loan” fiscally neutral ? Pravin said it would be fiscally neutral. The more I hear of Pravin the more I think he is full of it.2. How come the banks keep giving money to SOE’s? If this was a private concern there is no way they would touch it with a barge pole. Even with a state guarantee we all know it’s going to go tits up very soon. 3. What happens end of March when this cash has also gone down the tubes? What then?

At the end of the road stands the “lender of last resort” – the proudly independent South African Reserve Bank. The issue of bankrupt SOEs is our problem because we guaranteed the debt, not with our taxes as everyone thinks, but with the purchasing power of our currency. The banks keep on lending because they have got skin in the game already. The moment they stop lending they have to demand immediate payment from the central government, who does not have any positive cash flow. The government will pass the ball right back to the banks, who will pass it on to the fiercely independent Reserve Bank, who will pass the ball to us in the form of currency devaluation.

This brings us to the crucial question – How independent is any independent reserve bank really?

We will pay for the debt of SAA with the loss of purchasing power of our salaries.

Eskom and SAA is nothing more than a smoke screen to siphon bailout money into someone’s pockets. Closing them down or handing them over to a sensible business tycoon will prevent a ANC crony from getting his next BMW.

and so the looting continues 🙁

They don’t use the money for investments. We have a community development to establish 2000 young farmers with their own land, electricity and farming/living builds with stock and farming support at R42k per farmer with earning potential of R3k-R6kpm. Received nothing from any of these institutions.

Excellent background to yet another looting of assets! Many in the MW comments section have been warning of this for years. I fail to see how a bankrupt organisation with the same incompetent management can suddenly become efficient and profitable because they’ve been handed buckets of cash.

Yes … we are entering basket-case state scenario.

Liberators/Cadres/Terrorists are trained to destroy, they are not financial/business people. There will be no change until the current age group disappears.

Trouble is the younger ones are even more Clueless : EFF !!!

it seems that money may enter the governments paws from multiple sources, but it always ends up in one of two places, as funds to keep ANC voters employed or into the pockets of ANC looters. next months budget is going to be BIGLY !!!!!!

There has to be a corrupt interest in this DBSA-SAA-Treasury bailout.

Nobody at DBSA with even a single brain cell would approve this expenditure on a failing SOE (as is DBSA) that hasn’t presented financials for two years, when there are so many other desperate state development infrastructure projects needing funding. This loan isn’t coming back and we can bet Treasury’s underwritten guarantee is worth nothing, as it can’t get more out of the taxpayers, and while ANC continues to spend unrestrained.

Ergo, this is surely a corrupt arrangement.

End of comments.

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