Unlocking investment
The DBSA’S refined strategy focuses on projects that play an active role in the broader economy
The overarching goal of the Development Bank of Southern Africa (DBSA) is to deliver R100bn worth of sustainable infrastructure.
This ambitious goal is set against a challenging macroeconomic environment.
A global slowdown and consequent fall in commodity prices has affected GDP growth both in SA and on the rest of the continent.
Not surprisingly, the challenging economic environment has led to a slowdown in infrastructure investment and a weakening counterparty credit environment.
Both the DBSA’S mandate and emerging global consensus call for the DBSA to play a “catalytic” role in enabling sustainable infrastructure, says DBSA group executive for strategy Mohan Vivekanandan.
Catalysing infrastructure, he says, is a broad overarching term which denotes the DBSA’S monetary and nonmonetary contribution towards stimulating positive developmental change.
“The most appropriate basis for recognising the timing of catalytic values is on the financial close of the transaction, in other words, on commitment,” he says.
Globally, says Vivekanandan, development finance institutions are being called on to take greater early-stage risk, deploy guarantees, expand their loan syndication and focus on sustainable infrastructure.
“Around five years ago the bank went through a restructuring process in order to refocus the organisation on its core business, which is sustainable development impact.
At the time the bank was in a difficult position financially, and we realised that we needed to focus on growing our own balance sheet and make the most of the revenue from the capital of long-term loans.”
The level of infrastructure investment required by both SA and the African continent is not something that the DBSA can manage on its own. In the 2015/2016 financial year the DBSA lent R17bn.
It is estimated that Us$40bn to $50bn/year is required by the continent to be invested in infrastructure.
Experts have suggested that SA invests between 2% and 3% of GDP in infrastructure per year. This, says Vivekanandan, equates to around R100bn/year.
“The scale of the infrastructure gap in SA and the continent is much greater than our lending capacity,” he says.
Coupled with this, he says, many of the DBSA’S traditional clients don’t have the ability to borrow for infrastructure projects due to challenging economies.
The DBSA therefore realised it needed to play a different role to unlock infrastructure development by developing new products and services to continue to grow the development impact.
“In particular, we needed to derisk project finance structures in order to crowd-in third party funding and we needed to get more projects to a ‘bankable’ stage,” says Vivekanandan.
Historically, he says, relatively few infrastructure projects get to the bankable stage, primarily because of the lack of an open and transparent process, and secondly, because it’s expensive to get a project to this stage.
However, as this capital expenditure provides limited financial return, the private sector is reluctant to invest in ensuring projects are bankable.
As a development bank that prioritised infrastructure delivery and development impact over profits, the DBSA was perfectly positioned