Build investment framework and the funds will come

Given the sorry state of affairs at most of the state-owned enterprises, the government’s finances are buckling under the strain of bail-outs and government guarantees issued to prop up monoliths plagued by years of inefficiency, financial mismanagement and outright theft.

Although partial privatisation may be the answer some time in the future, you cannot privatise a company until you have had an opportunity to fix at least some of the problems.

The other major issue facing SA is our failing infrastructure.

Years of underinvestment have meant that many parts of the country are facing a lack of water, poor sanitation and terrible road conditions. Fixing and upgrading infrastructure is a multiyear project. On the positive side, it has the potential to create an enormous number of jobs, making a real dent in unemployment. On the negative side, it requires funding on a massive scale — funding the government cannot afford.

There is only one answer. We need to mobilise the savings of ordinary South Africans and attract foreign investment and deploy these in a manner that is constructive for SA as a whole.

One option is infrastructure bonds listed on the JSE.

Another is infrastructure funds specifically set up in partnership with the private sector — although I am always wary of private equity-type vehicles that lock in savings, revalue assets at will, charge astronomical fees and produce uncertain returns many years later. Hence the latter requires a carefully managed framework.

The question is whether there is a will to invest. In a world where volatility is increasing, where stock markets are providing negative returns and are bound to continue to do so as quantitative easing around the world is cut back, where diversification is hard to come by with Naspers dominating the JSE, there is a definite demand for alternative investment options.

Infrastructure bonds targeting well-run projects, which guarantee certain returns in a not dissimilar manner to inflation-linked bonds, could be just the answer.

The issue is not mobilisation of savings, as this would come. The issue is the government setting up structures, probably in conjunction with the private sector, that would provide investors with the security of knowing the projects are well run, that they have the potential to generate the returns they promise and that there is no opportunity for “corruption slippage”. We cannot afford another South African National Roads Agency disaster.

If one can set up the right structures and amend legislation to allow for certain tariffs and levies to apply, government guarantees would not be required. In fact, it would not be necessary to force investors to invest. Money migrates towards well-run investments that offer attractive returns.

In a world of Steinhoffs, Resilients and other corporate failures on the JSE, trust in traditional stock investments is at a record low. In a world where Naspers can get away with not paying R20bn worth of tax on its disposal of 2% of Tencent through clever tax structuring, while investing none of the gains made back into SA, investments that carry a patina of a social good might well be a highly desirable option for many.

The true challenge lies in setting up a task team between the Treasury and the private sector, including financial services companies, where an appropriate framework for such investments can be designed.

If we were to succeed, the social and economic benefits could be enormous. Wierzycka (@Magda_Wierzycka) is Sygnia Group CEO.