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South Africa must kickstart stalled infrastructure investment with few select projects – CDE

infrastructure investment
February 09, 2022

by nfdeklerk 0 comment

South Africa must kickstart stalled infrastructure investment with few select projects – CDE

South Africa’s development has stalled and the country must decide on four or five projects to kickstart investment, as well as focus on partnerships that appeal to private investors.

“Government leadership must stop talk of the imminent arrival of scores, if not hundreds, of projects. This is not going to happen,” said policy analysis and advocacy organisation Centre for Development and Enterprise (CDE) executive director Ann Bernstein.

“There is already strong concern among investors – local and international – about the country’s credibility and capacity to set up fast-tracked projects for private investment. Without speedy action, investors will lose interest and move on,” she said.

“The private sector is willing and able to participate in well-designed, State-led infrastructure projects, but there are no projects coming to market. Business, in turn, needs to make the requirements of investors crystal clear. This is not a time for mixed messages or coded politeness; it is a time to be very frank,” she asserted.

A CDE report, based on a high-level workshop in October between leaders in the financial sector and senior government officials responsible for the State infrastructure drive, says government needs to distinguish clearly between taxpayer-funded projects and those that could attract private investment.

“Government should prioritise projects that are vital to improve conditions for faster economic growth, which can be launched without imposing new strains on the taxpayer. Leadership is required to cut through the complexity of government architecture around infrastructure development, and move a few priority projects to the fore,” she says.

Projects that are forced to have numerous additional objectives, such as empowerment, localisation, community development and more, contribute to the delivery of infrastructure being more costly or not happening at all.

“Government seems determined to do everything at once, but with very limited capacity. The consequence is that we end up doing very little. More efficient ports, reliable trains, new roads or bridges will promote widespread development with very many beneficiaries, and that is what we must focus on,” Bernstein emphasised.

Government must push through the regulatory changes that would encourage public-private partnerships (PPPs). There is an enormous focus on projects developed by the State, but considerable infrastructure could be built by the private sector if policy changes were made. Done right, key government decisions could unlock private investment at significant scale, she said.

Further, the 100 MW exemption on embedded generation is an important first step to improving electricity supply, but it should not be the end of that process, she added.

“Dealing with the investment environment for the mining sector will drive new spending in exploration, resolving uncertainties around property rights will lead to more investment in agriculture, making a decision on e-tolls in Gauteng will create certainty for investors in roads, opening ports to private investors and implementing the President’s 2020 commitment to open access by third-party operators to the national rail infrastructure could attract considerable investment and signal a welcome new approach.

“Much more urgency in implementing policy reform is required, if we really want private investment that kickstarts economic growth,” she emphasised.

However, simply involving the private sector is no guarantee of efficiency or success. Investors and officials must negotiate, in specific terms, how risks and returns are to be allocated for these projects to ensure a sustainable financing model for public goods, the report stated.

What matters is that projects are designed to ensure competition, as well as market-driven outcomes and to prevent corruption and malfeasance.

“However, perfection should not be the enemy of the good. Once some feasible projects are initiated, improvements will emerge,” Bernstein said.

Further, placing private sector experts within a bureaucracy struggling to deliver investable projects to the market, in a context where legislation is not conducive to PPPs, and where there may be questions about the bankability of many government projects, may not be the optimal use of that expertise, she posited.

Construction mafias – local groups that demand a significant portion of the project’s contract – are a big hurdle preventing increased private sector investment. They must face the full force of the law if South Africa wants to encourage investment and also get the most out of its existing infrastructure.

“There are no shortcuts, much as we want them, and infrastructure is not a silver bullet for the country’s ills.

“However, getting four or five projects off the ground, coupled with the changes required to open up new areas for private sector investment (rail, power, roads and more), could be a bold signal that South Africa is determined to act decisively and reform. This is key to attracting new infrastructure,” Bernstein said.