Fast-tracking project delivery
Infrastructure Fund plans to mobilise R1-trillion in investment by 2030 with blended finance solutions
South Africa urgently needs more investment in infrastructure to boost growth, but, there are numerous constraints impeding project delivery. Arguably, the biggest obstacle is a lack of technical capacity among project implementers which typically results in delays, cost overruns and poor project outcomes.
“Infrastructure projects often require specialised technical skills and expertise, including engineering, construction and project management,” says Mohale Rakgate, the Infrastructure Fund’s chief investment officer. “Even if the funding is in place, without the specialised technical skills and capacity at preparation stage, the project will fail.”
Most projects in the infrastructure pipeline require a great deal of preparation, he says. “Proper development and preparation can take up to two years. The downside is that it slows down the rate of investment. The challenge in South Africa is that most project sponsors don’t have the requisite capacity to adequately prepare and manage infrastructure projects.
“Given that project development, financing and implementation of public roles are legally designated for project owners, the result is that few projects are gaining momentum and that even approved funding for projects often remains unspent.”
Long-term, large-scale infrastructure projects typically involve numerous stakeholders including local communities; national, provincial and local government; and private
sector investors. Direction and co-ordination among these stakeholders can be challenging, says Rakgate, particularly when different priorities and perspectives come into play.
Similarly, political instability, social conflicts and community opposition, particularly when it involves land acquisition or displacement of local communities, can impede the process.
To fast-track infrastructure delivery, Rakgate says South Africa needs to urgently reform its project appraisal, preparation and financing approaches, including approving and committing public infrastructure funding in line with the tenure of loans.
“Blended finance projects are linked to the budget processes of funding commitments which are made over three-year medium-term expenditure framework cycles,” he says. “Most capital projects have a lifespan of more than five years. When financing projects,
both the construction as well as the operational periods are considered by the funding market.”
The challenge is that the proposed period typically does not accommodate and address the most significant challenges of infrastructure implementation. To catalyse private sector and development finance, most debt instruments for capital projects are long-dated in nature, ranging from 10 to 20 years.
“We need reform to approve and commit public infrastructure funding in line with the tenure of loans,” says Rakgate. “This will enhance credit transactions to attract potential lenders to participate in the market.”
“We need the public and private sector to collaborate to address the skills gap and, where project owners don’t have the capacity to implement and manage projects, work with capable government entities and the private sector to do so.
“At the same time, we need to increase investment in project preparation and ensure a dedicated focus on large, impactful socioeconomic projects with a blended finance orientation, improve intergovernmental co-ordination and planning, and implement public finance management reforms to facilitate more private sector investment in public sector projects.”
Addressing infrastructure development constraints, says Flora Marutle-Simelane, head of the Infrastructure Fund’s legal unit, requires a multifaceted approach.
This includes strengthening institutional capacity; improving planning and co-ordination among stakeholders; addressing regulatory and policy bottlenecks; and mobilising the private sector to become long-term project partners. Publicprivate partnerships and innovative financing models will activate private sector investment and increase the availability of funding.
Onerous bureaucratic procurement processes are often blamed for projects failing to get out of the starting blocks. But as
Lack of capacity can mean that even approved funding for projects often remains unspent
Mohale Rakgate, chief investment officer at the Infrastructure Fund