Big state bank needed for infrastructure
There can be no question but that an infrastructure renaissance is the way to our economic salvation. It’ll create jobs and assets and capacities and exports and ... everything we need to trade us out of the otherwise declining future we are surely facing.
The big question is: how to fund it? Whichever way you’d like to cut it, however hesitant you might be, the state will have to play a significant role. In fact, it may be argued that the state will have to be the “anchor tenant” in the funding construct.
The only way we’ll attract the right amount of capital at the right price will be on a projectspecific basis. What’s more, we need informed, tough capital providers that will demand and watch over the appropriate deployment of their money in what becomes a rewarding, albeit tense, equilibrium between capital providers and executives.
It would certainly be more difficult for new investment capital to be raised into central government for discretionary deployment, other than the already well established (and, it must be said, highly successful and liquid) government bond issuance programmes.
Specific project finance, where net present values and internal rates of return rule the day, is what we need. For the right capital project there is always smart money, locally and abroad.
As I recall, that’s how Eskom was initially built — not with taxpayers’ money but based on the expected cash flows a utility monopoly (then) would yield, with a very high degree of certainty. This approach in no way diminishes the vital role of the state, which is in a unique position to collect taxes (or provide incentives) for these long term capital projects; and the sovereign cost of capital should still be the lowest.
Efficiency of administration and prioritisation of capital allocation between infrastructure projects may require government guarantees or the provision of base, first loss capital, which will best be achieved through a measure of consolidation in the development finance institution industry.
Call it a mega state bank if you like. The operations, oversight and capital allocations of, say, the Development Bank of Southern Africa, National Empowerment Fund, Industrial Development Corporation, Land Bank, National Housing Finance Corporation, National Youth Development Agency and so on should be merged into one supercentre of infrastructure funding capacity, expertise and technological leadership. Multiple projects (some capable of issuing capital bonds in their own name), under one mother ship. A mini-capital market of exciting long term projects.
On the other side of the scale we have to get entrepreneurs going. Here I don’t think we can look to the state as first provider. It will be an ultimate beneficiary through a broader tax base, so perhaps it would not be out of order to ask it for some initial incentives.
Experienced and established private sector businesses have to step up to the plate. If you, for instance, own a successful restaurant chain, or any other retail operation, you would know for sure who the operators are within your business that could go out and replicate your business model in different geographies and demographics, adapted for local demand — the waiter, the chef, the front of house manager, whoever.
Who better to finance and mentor such proven talent into, for instance, a franchised operation in locations where local knowledge can partner with experience to build a successful replica of what you’ve established with all the systems, economies of scale, supplier relationships that took years to establish? All of that culminated in a brand that can charge a premium for proven, consistent quality which, in time, will allow that “start-up” to raise capital and grow.
Retain a fair percentage at the outset, of course, but eventually that economic equation must be adjusted to create the new breed of independent business people that our country so desperately needs. Have a go, it won’t fail.