Necessary but not sufficient: turning SA into a building site

Infrastructure is the plumbing of a modern economy – a necessity to promote economic growth but by no means sufficient to ensure it. That South Africa (SA) needs infrastructure and economic growth is no secret, the trick really is how to bolster both these critical needs.

In this article we focus on infrastructure specifically, and what lessons we can learn from a global perspective and could usefully be applied to South Africa.

Some of the key features that come from a global view is the necessity for any infrastructure project to attract public and private capital, from local and global sources. To do this the infrastructure projects needs to be bankable, meaning investors must understand what they are reasonably going to get out of their investments. This includes the impact of the investment and the reasonable investment returns that they can achieve from the project. Bankable projects require stability and certainty across multiple dimensions, including economic stability and regulatory certainty. Investors will always invest with the end in mind: They want to know what they are getting themselves into and how they can exit their investment cleanly.

Another key criterion, pertinent for South African investments, is the need for maintenance. Part of the problem that we have experienced and are experiencing across a range of infrastructure – be it logistics, railways, electricity and water – is a dire lack of maintenance over many decades.

The reality is that SA does not have sufficient capital to meaningfully make progress on our infrastructure backlog without the participation of a broad range of public, private, local and international investors. Therefore, any programme that attempts to accelerate the infrastructure development needs to be mindful that projects need to appeal to all stakeholders.

We have achieved some success with Public Private Partnerships (PPP), notably on renewable energy infrastructure side, as well as the Gautrain project. However, there is a lot that we need to work on to scale up these programmes.

One of the clear challenges in SA is that of regulatory complexity and certainty. There are examples where regulation is not only not harmonised, but seems to work counter to each other, and in some instances contradict some of the good intent that government is trying to achieve through well-intentioned policy. A good example is the relaxation of Exchange Controls, allowing pension funds to invest more money offshore (up to 45% of assets). These regulations effectively reduce the available investable capital in South Africa, at the same time as advocating for more infrastructure investment.

Policy certainty is also a key ingredient. When investors make long-term investment decisions into infrastructure projects that have a lifetime and payback period spanning decades, knowing that the rules of the game will remain constant is extremely important. This is a time for long-term and at times difficult regulatory choices.

A new social compact between all role-players is needed to allow for alignment and mutually acceptable terms for all key stakeholders. Without this, we will never be able to make meaningful progress on what we need: Big chunky infrastructure that will meaningfully change the economic infrastructure of our country, which will then allow for meaningful and accelerated economic growth, which is a critical ingredient to enhance economic growth.

The good news is that there are real examples of mutually beneficial projects and successes that have been achieved. Clusters of stakeholders are aligning behind a common purpose and tentative steps are being made to move forward on making a meaningful difference to infrastructure.

All South Africans are affected by this. It is in our common interest that we align to ensure success, even if some of the choices are difficult in the short term.