Financing

Chuene Ramphele, group executive: Infrastructure Delivery Division, Development Bank of Southern Africa

The Covid-19 pandemic has reduced economic performance globally and seriously aggravated South Africa’s struggling economy. This reduction in economic performance automatically inflicts a gap in funds available for infrastructure development. It is now vital that we find solutions to deliver the maximum economic benefits from infrastructure investment. By Chuene Ramphele

Making infrastructure development a reality

Countries around the globe, including South Africa, are hard at work to reconstruct and revive their economies. The language spoken is that of economic recovery plans that are resilient to address the pandemics of poverty, unemployment and inequalities.

The recent World Development Report 2020: Trading for Development in the Age of Global Value Chains clearly ascertains that, in order to reverse the serious setback to development progress and poverty reduction, countries will need to prepare for a different economy post Covid-19 by allowing for capital, labour, skills and innovation to move into new businesses and sectors.

There is no doubt that the South African government has developed policies to support infrastructure development in South Africa. At this point, we as the role players in the infrastructure space need to focus on harmonising resources and collaborating in support of each other to realise the noble objective of sustainable economic growth.

Towards this end, President Ramaphosa’s Economic Reconstruction and Recover Plan – aimed at helping the economy recover from Covid-19 and the resultant lockdown – has placed a strong focus on creating jobs through aggressive infrastructure investment and mass employment programmes.

This is supported by the Infrastructure Fund (IF), which will make available R100 billion over 10 years, with R10 billion in funding in the current Medium-term Expenditure Framework. The IF will be used as viability gap funding for large-scale infrastructure investments. The support will take different forms, including the funding of deserving infrastructure projects, blended co-funding, capital subsidies, or interest rate subsidies and guarantees.

Economic benefits of infrastructure

Infrastructure development has huge potential

to expose opportunities for multiple socioeconomic benefits. Through infrastructure development, we can practically stimulate construction, provide communities with livelihoods, enhance the supply value chain, and implement skills training and development through on-site activities.

We should not spend time debating as to which infrastructure to focus on – there is no doubt that transport, energy, roads, water, and communication networks catalyse economic growth and affect all aspects of our day to day lives.

Challenges

Interestingly, what constrains infrastructure development are not the technical and engineering issues but soft issues that present hardships to projects. Too much is at stake for investors, funders and developers if infrastructure development is constrained.

I maintain that we need to address the following stumbling blocks if we are to succeed in delivering sustainable infrastructure and unlocking economic growth:

1Community and social facilitation

We must engage community members in developing and planning projects and ensure that project charters are in place as an integral part of project governance.

Partnerships with community-based organisations must be pursued to deepen and facilitate community training on the need for their participation in the development of projects within their jurisdiction.

We also require an aggressive programme to workshop the consulting and construction fraternity on social facilitation and how to ensure effective community participation in projects. This education must be recognised in the form of CPD points.

2Stakeholder engagement

Similar to the point above, it is vital that we involve people who may be affected, directly or indirectly, by the project to achieve consensus.

We need to address the needs and expectations of the stakeholders before commencing the project and, in this regard, the District Development Model remains an instrument we should take advantage of.

3Developing skills and capacity

Strengthening and maintaining the existing skills and knowledge of the country is required to drive its infrastructure development agenda. We need to develop our built environment institutions, focusing on artisans, engineers and professionals throughout the execution of projects.

4Fostering technological innovation

We must leapfrog into using building information modelling (BIM) as a solution for the effective delivery of infrastructure to harnesses time and cost savings. It is becoming urgent that we adopt BIM – along with other emerging technologies – to give architects, engineers and construction professionals the tools for efficient planning, design, construction and management of buildings and infrastructure.

5Harnessing private capital

Public sector budgets across the developing world are strained, with municipalities facing revenue shortfalls. We need to develop new models for co-funding infrastructure that harness private capital to leverage government spending on infrastructure, thus achieving an optimal mix of public and private finance.

The recent Sustainable Infrastructure Development Symposium indicated a total of 276 projects with an investment value of more than R2.3 trillion. This can only be achieved through investment by the private sector.

6Infrastructure maintenance

Infrastructure development must be understood as encapsulating not just the construction of infrastructure but the operation and maintenance of that infrastructure throughout its lifespan. Investing in infrastructure maintenance offers outstanding opportunities for economic stimulation by creating jobs and realising capital expenditure.

International best practice asserts that a minimum of 8% of the infrastructure budget be allocated to maintenance. It is time that this practice is adopted by infrastructure institutions in South Africa as we implement the National Infrastructure Maintenance Strategy approved by Cabinet in 2006.

Financing considerations

The Development Bank of Southern Africa (DBSA), as a progressive development finance institution, agrees with the school of thought that infrastructure development is a key driver of economic growth and development.

To achieve this, we have identified the need to design hybrid funding solutions that deliver the economic benefits of infrastructure investment while maximising the ability to leverage private sector capital.

In South Africa, the Infrastructure Investment Committee has identified three financing methods to achieve this: debt capital markets, blended financing, and the fiscus. The IF, which is managed by the DBSA, is one of those blended financing mechanisms already being implemented.

Thus, the DBSA continues its mandate to build Africa’s prosperity through financing and implementing sustainable infrastructure. In doing so, we focus on promoting economic development and sustainable growth, human resources development, and institutional capacity building by mobilising financial and other resources from national and international private and public sectors to drive sustainable development projects and programmes in South Africa and the rest of the continent.