Set out the right bait and business will bite
In strict financial or fiscal terms, President Cyril Ramaphosa’s economic stimulus package is not a stimulus package at all. There is no new public money going into the economy, and that’s no bad thing given that government doesn’t have the money to spend. The R400bn of public money that will go into the new SA Infrastructure Fund is simply the infrastructure spending — minus that of the stateowned companies — that government already had on the budget for the next three years. And the R50bn that’s going into new priorities such as black commercial farmers, township and rural economies and bedding for public hospital patients is being shifted somehow from other budgets.
In economic terms, however, this could prove to be a package that could bring plenty of new money into the economy and make a real difference. Ramaphosa will have to make it attractive and bankable for the private sector to invest. That means changing the way government works with the sector. And it means taking on the vested interests in all levels of government and addressing or bypassing the dysfunction within that prevents even the best projects and policy interventions from yielding the growth and jobs the government says it wants.
Take the Infrastructure Fund, which is perhaps the signature new measure in the package of promised reforms. Ramaphosa described it as a “mega-fund, able to galvanise even the private sector to participate”. That at least is what I heard him say, and the “even” is just a little disturbing, given how keen the private sector is to invest in public infrastructure, and how much money is out there in pension funds and other private-sector investment vehicles just looking for bankable projects.
Ramaphosa himself commented on how many private-sector companies had come forward to fund and build school sanitation projects, in response to the horror stories of children dying in pit latrines. Arguably, the government just needs to let them, but the vested interests and bureaucratic empires often seem to be intractable, as is the lack of capacity in the public sector to contract with the private sector, and some ideological reluctance even to contemplate it. That’s what Ramaphosa’s administration will have to navigate if it is to get the fund to fly.
It’s unclear how the new fund will work and how it will be governed, but the idea is to pull together the hundreds of billions allocated to the government’s fragmented and less-than-effective infrastructure spending programme in an effort to get it to work, and in a way that pulls in outside funding and outside expertise. “We want to engage the R400bn differently to get a different set of outcomes,” says treasury director-general Dondo Mogajane, who talks of getting corporate-finance thinking and skills into the fund, while Ramaphosa speaks of project-finance expertise.
It all seems a bit of a jumble at this early stage — the fund is going to be a blended finance model, bringing in development finance institutions (such as the Industrial Development Corporation or Development Bank) as well as multilateral development institutions (such as the World Bank) and private-sector pension funds and other investors. There will be bonds perhaps, and other vehicles, but it will be infrastructure investment in areas such as water, sanitation and housing, not in state-owned enterprises. And crucially, Ramaphosa promises an execution unit in the Presidency which will bring in private-sector expertise to identify “shovel-ready” projects and ensure they happen.
There could well be bureaucratic and political obstacles on the way to putting in place the kind of entity that outside funders and experts will want to work with. But private financiers will be lining up if Ramaphosa and his colleagues really can find a new and different way of working with the private sector on infrastructure investment. It’s not even the fund as such — it’s the approach that will matter, as it will too with the visas and broadband spectrum and other reforms that Ramaphosa promises.