Since the adoption of the National Development Plan (NDP) by Government and the Presidential Infrastructure Co-ordinating Commission (PICC) which preceded it, the focus on infrastructure has been at the heart of the on-going dialogue on sustainable, socially cohesive and growth oriented development and economic competitiveness, performance and transformation. The NDP proposes some concrete steps at the heart of the infrastructure question. It states: “The country needs to make large investments to propel economic activity. These investments need to be made in a structured, considered manner to prevent inappropriate initiatives, protect South Africa’s resources and ensure that prioritised investments are efficiently implemented.”
The pivotal role of infrastructure in economic growth is also borne out of international experience. One of the defining features of China’s rapid transformation into an industrial powerhouse has been investment-led growth. The post-war reconstruction of Germany and its on-going success are due in part to substantial investment into ports, high-speed railways, autobahns, schools and universities. Similarly, Brazil has established dedicated Development Financial Institutions (DFI's) to support both state and private sector infrastructure financing and investment. Whilst the obvious focus for the banking sector in infrastructure may be in the realm of infrastructure financing and investment, the remit of infrastructure as it relates to banks could in fact be much broader than infrastructure finance and investment alone. A deeper understanding of the differentiated and complimentary roles the banking sector and the state can fulfill in respect of infrastructure.
Within the same context, the particular infrastructure types and classes require a deeper understanding. We need to understand the role of the banking sector in sectors such as energy, transport, education, health, human settlements, water, sanitation and information and communications technology.
The Banking Association has been part of the broad business initiative responding to the infrastructure challenge under the auspices of Business Leadership South Africa (BUSA). The focus of this initiative is the conceptualisation and implementation of the major infrastructure projects, under Strategic Infrastructure Projects 1 (SIP 1).
The Banking Association is also part of The Task Team on Private Sector Financing of Infrastructure convened by the National Treasury. This Task Team seeks to identify and create an enabling environment for private sector participation in the funding of infrastructure projects in South Africa. The Task Team also aims to identify blockages to investment, problem solving around these, and making recommendations for the private or public sector parties to resolve. The ultimate outcome is to achieve a clear set of rules, principles, processes, and structures which provide an enabling environment for private sector participation in financing infrastructure, but also to assist with building an atmosphere of collaboration, trust and confidence amongst all private and public sector players involved in infrastructure financing.
The Task Team consists of The Banking Association, Association for Saving and Investment South Africa (ASISA), Presidential Infrastructure Co-ordination Commission, Public Investment Corporation (PIC) and Finance Trade Union SASBO. There is an intention to include other key players such as the Development Bank of South Africa (DBSA).
The Banking Association is also in ongoing talks with ASISA to establish a team that will look at Public-Private financing structures.
Infrastructure Finance and Investment
Finance and investment for infrastructure development is a crucial part of raising South Africa’s growth rate. National Treasury has indicated that a one-percentage point increase in infrastructure investment will increase long-term GDP by 1, 3% and employment by 0, 7%.
Conversely, inadequate investment in infrastructure creates bottlenecks and slows development (The electricity outages in 2008 and the subsequent shortages have slowed down investment and production in the mining, chemical and other high energy consuming sectors). The NDP proposes that South Africa should invest in a strong network of economic infrastructure designed to support the country’s medium and long-term economic and social objectives. The economic infrastructure the NDP proffers is a precondition for providing basic services such as electricity, water, sanitation, telecommunications and public transport that are capable of meeting industrial, commercial and household needs.
The NDP argues that South Africa possesses a relatively good core network of national economic infrastructure, but maintaining and expanding this to address the demand of a growing economy is a challenge. There is some concern that the state does not possess the institutional or financial capacity to implement the investment plans needed to finance infrastructure on the required scale.
The country needs to make large investments to propel economic activity. These investments must be undertaken in a structured and considered manner to prevent inappropriate initiatives, protect vulnerable resources and ensure that prioritised investments are efficiently implemented. Better quality investment decision-making must inform the state’s financial resource allocation, ultimately stimulating economic growth.
Current investment levels are insufficient and maintenance programmes are lagging. These have been historical and system-wide legacies. Even during the significant uptick in economic growth and investment of the late 1990s and early 2000’s, finance and investment in critical economic infrastructure development and maintenance did not keep pace with the underlying economic performance through adequately leveraging prevailing capital inflows.
As explained previously, the particular infrastructure types and classes within which the banking sector in South Africa can leverage its competitive advantages and capabilities require a deeper understanding. Priority infrastructure classes for the NDP and the PICC are; energy, transport, education, health, human settlements, water, sanitation, Information and Communication Technology (ICT) and regional infrastructure.
The latter, regional infrastructure programmes, are an important contributor to regional integration, including South Africa’s participation in the African Union’s sector specific projects that facilitate and enhance regional trade and investment performance, such as the north-south corridor, enhancing borders facilities, improving energy access and ICT connectivity and revitalising transport and logistics links. Government has identified potential projects worth about R3.2 trillion between now and 2020. Over half of these projects, about R1.9 trillion worth, are in electricity, transport, education and health.
These projects range from those already under construction, such as the R121 billion Kusile power station, those at a feasibility stage such as the Sishen-Saldanha iron ore railway line, to those that are still at a conceptual stage. Many of these projects reflect the vision of where Government envisages the country to be in 2030 – new universities, new hospitals, new railway lines, new houses, as prioritised by the Presidential Infrastructure Co-ordinating Commission (PICC) whose task is to oversee the implementation of infrastructure and to ensure that there is proper co-ordination between government departments.
Investment and Finance
The NDP identifies electricity, water, transport and telecommunications as key points of departure for critical economic infrastructure that is the foundation for social and economic development.
In the transport and energy sectors, where state-owned enterprises dominate, the economy has already been constrained by inadequate investment, maintenance and operation of existing infrastructure. In the telecommunications sector, policy and regulatory uncertainty and the lack of capability remain barriers to infrastructure investment and to achieving affordable, quality services, especially for the poor.
In the water sector, delaying critical investments may result in water shortages.
Greater public-private financial partnerships involving the banking and institutional investor sectors are likely to bring about better decision-making and improved spending discipline, resulting in more rigorous assessment, shareholder accountability and reporting. This will contribute to further access to capital for infrastructure finance and investment.
The banking sector can also play a role in co-ordinating financing and investment planning in infrastructure and services that take account of and respond to climate change and other environmental performance measures that contribute to a sustainable low-carbon green economy with an aligned economic growth trajectory.
The banking sector can play a significant role in providing favourable financing and investment terms for enterprises involved in research and development, innovation, as well as dedicated financing and transaction advisory services customised to the requirements of particular entrants in the green economy, including SMEs. Banks have well developed expertise in structuring projects and financing the initial phases of the infrastructure projects. We must design a model to facilitate the participation of the banking industry, long-term savers, pension funds as well as DFI's.
Research and Development in new, innovative infrastructure is very crucial. The banking sector could contribute to, and undertake greater investment in research and development around the green economy and identify more structured collaboration with state-funded developmental finance institutions, incubation programmes and centres of excellence involved in enterprise support and project development in the green economy. For example:
- The Development Bank of Southern Africa Green Fund
- The National Cleaner Production Centre of South Africa
- The Climate Innovation Centre (at the Blue IQ Innovation Hub)
- Industrial Development Corporation (IDC) Green Energy Efficiency Fund
Government should also be bold in examining the possibility of existing sectors and industries where the private sector can play a more constructive role, and determine an appropriate role for State Owned Enterprises (SEO's). It should also deal with turn-around times and uncertainty that tend to impact negatively on major infrastructure projects.