Covid-19 overshadowed everything, including the creation of Infrastructure South Africa (ISA) in May 2020. The announcement deserved more attention.
Led by the respected and knowledgeable Dr. Kgosientso Ramokgopa, who reports directly to the President, the establishment of the ISA is a watershed moment as it:
- Allows the government to recruit private skills to develop its internal infrastructure capacity.
- Acts as the single channel through which all published infrastructure projects are implemented.
- Prepares and packages projects for investors to improve transparency and bankability.
- Influences the procurement framework that governs public-private partnerships (PPPs).
This is the flavor of the reforms that investors and companies interested in infrastructure development are eagerly awaiting. They fit nicely into the larger narrative of government policy becoming more business-friendly.
A top water mark
We have seen, heard and felt the consequences of neglected water infrastructure. It is easier to imagine a future with permanent shortages of drinking water. But with the government showing real intention to work with the private sector on infrastructure development, we may be spared this dystopian outlook.
As a recent example, government guarantees have enabled Transcaledonian Tunnel Authority (TCTA) to raise over R15 billion in private investment to further develop the Lesotho Highlands Water Project. In addition to strengthening the critical water levels of the Vaal River system, a large value chain of companies will be engaged for the development of the project, creating jobs.
Business and corporate interest in desalination and wastewater treatment plants is also on the rise: the former to secure supply for coastal industry, the latter to recycle water instead of paying more.
“Water is the next crisis, not just in South Africa, but on the continent. For obvious reasons, the focus has been on electricity, so water and sanitation have been left somewhat behind. So yes, there is definitely a need for investment,” said Franca Sandham, project finance consultant at Investec.
Read more: Drinking water and sanitation – How the mining sector is doing what it can to help
When the specter arrives
After nearly 16 years of failed attempts by the Independent Communications Authority of SA (Icasa) to auction more spectrum to SA telecom operators, a date has finally been set for March 8-10, 2022. There are also other encouraging signs:
- Government relief packages distributed through telecommunications networks at zero cost created vital goodwill;
- The migration from analogue television to digital television (which would free up spectrum) seems scheduled for March 31, 2022;
- The temporary spectrum released during the pandemic sparked a 5G rollout that showed its potential; and
- More frequent meetings between Icasa and telecom operators suggest a new urgency.
If the spectrum hurdle diminishes, the investment case for deploying telecommunications infrastructure is bright. At its root is the overall, near-perfect correlation between internet speed and data usage. In other words, build it and they will come.
Pound for pound, laying fiber in peri-urban and rural areas will have weight. Broadband connectivity can support small business growth and employment; enable the large-scale distribution of world-class educational materials; improving access to health care resources; and promote smart agriculture.
“5G will boost the digitization of businesses and support mission critical functions. Think about the precision of time and distance needed to moor a container ship, for example. In education, MTN and Vodacom have launched their own free learning platforms that allow learners to download their entire curriculum. This helps a lot of schools in rural areas. There’s plenty to be excited about,” said Louise Pillay, senior telecoms equity analyst at Investec.
Growth beyond borders
“Everyone has heard of the IMF and the World Bank. Together with other institutions, they fund approximately $250 billion in global infrastructure development each year. Not everyone knows the export credit market matches that number,” said Chris Mitman, Head of Export Finance at Investec.
African countries can use this mechanism to help each other develop their respective infrastructures. Take the expected construction of a railway line in Ghana. To help raise the necessary funds, the Export Credit Insurance Corporation (ECIC) of South Africa, a public institution, provided the loan insurance that enabled Investec to provide trade financing of 75 million euros. to the Ghanaian government.
The best part? The loan is conditional on the use of capital goods and services from South Africa to construct the railway to the tune of 70% of the loan. It’s more than 50 million euros in contracts that will boost our exports and create jobs. Two other projects – one in transport, the other for a hospital – are financed in the same way.
“The hospital transaction will give three million people in Ghana access to world-class healthcare who otherwise could not afford it. This will have a big and fast impact, which is exactly the type of project, from an SDG perspective, that we are looking to fund. This is a great example of the inter-African trade that we are working to promote,” said Brian Irvine, Head of Structured Trade and Africa Debt Solutions at Investec.
PPPs on the move
Infrastructure projects are part of a continuum. On the one hand, projects adapted to pure public funding; on the other, those that the private sector can manage itself. For everything in between, there are PPPs.
Fifty-five such projects, valued at R595 billion and expected to create more than 500,000 jobs, are currently being prepared and put together by the South African government – they need R441 billion from the private sector to materialize them.
Four of these projects have already passed the ISA stages and received the green light: two water projects in Limpopo; student housing built for 9,600 learners; and a social housing scheme, worth a total of R21 billion. A one-stop border post project is expected to be approved any day.
“In the past, the process of getting PPP approval from the National Treasury was very long. You can see they are now trying to streamline this process. External advisors, who understand best practices, are actively consulted. It will take time, but the government is now working to remove the barriers to PPPs,” said Martin Meyer, head of power and infrastructure finance at Investec.
Spin the steering wheel
Speaking in his capacity as Chairman of the Banking Association of South Africa (BASA), Richard Wainwright, CEO of Investec Bank, abstract what is needed to get infrastructure, what President Ramaphosa calls the “flywheel of South Africa’s economic recovery”, in motion:
“The problem with a flywheel is that once it spins, it gets its own momentum. So let’s spin it. Not 62 drafts, not even 50, but three or four. Because once investors can see the wheel turn; once they can see evidence of strong sponsors, alignment across government, and a workable framework for realizing financial returns…that’s when that our infrastructure funding backlog of R440 billion will start to look like a huge opportunity for private sector investment. DM/BM
This article was written by Warren Kelly and originally appeared on Focus Investec.