Big investors need to know how SA will dig itself out of the mire
In the end, though, it’s not a project pipeline that we need
If there was a standout piece of bad news in last week’s first-quarter growth numbers, it was the 20.5% contraction in investment spending. The trend is not new. Fixed investment has shown positive growth in only four quarters in the past four years; in real terms it is now more than 10% lower than five years ago. This means the economy isn’t adding or even maintaining the capacity it needs to start growing. Nor is it building the infrastructure SA needs to become more competitive. Fortunately, everyone agrees that investment, particularly in infrastructure, is a top priority. Business for SA’s recovery plan released on Friday cites this as a cornerstone, with energy, transport and ICT infrastructure high on its list of priority projects. And the ANC’s latest economic document identifies an infrastructure-led recovery as the first pillar of its new policy framework. Everyone agrees, too, that much of the money will have to come from the private sector.
President Cyril Ramaphosa told us in April that a substantial infrastructure programme was one of the interventions central to the government’s “third phase” economic recovery strategy, which he promised to outline “in coming days”. We are still waiting.
He has over the past year established an infrastructure fund and an infrastructure office in the presidency tasked with making it happen.
The new office has since February worked with funders, bankers and project promoters to evaluate some 276 projects and whittle them down to a pipeline of 88 — of which 55 might be bankable. It brought almost 700 delegates together online at the recent Sustainable
Infrastructure Development Symposium of SA to explore partnerships and opportunities.
But we have seen this movie before. And while the symposium process has elicited public enthusiasm from players who have long been keen to arrange, finance and build infrastructure, there is plenty of private frustration. Some of the projects are not really infrastructure
(fish farms, for example); others are social projects that don’t lend themselves to private-sector finance; yet others are wish-list items that will never get built; and some are projects the private sector is going ahead with anyway.
A bigger problem is the size of the pipeline — even 55 is too many. There are limited resources to fund these, especially in a domestic economy that is savings constrained and a global economy in which every country is looking for infrastructure finance to support its post-Covid recovery. And there are even more limited resources of experience and capacity — particularly within the government — to make the projects happen. The size of the pipeline reflects the government’s inability to decide on priorities. It would do better to start with three or five projects and partner with private-sector players to make them happen, building a track record that could unlock further investment. That would require experienced dealmakers on the government’s side with the authority to act, and the trust of the private sector.
But those deals won’t be done unless the government faces up to making regulatory and political changes. The independent power programme and the N3 and N4 toll roads rank among SA’s biggest successes when it comes to public-private infrastructure partnerships. But private-sector financing of roads is not going to happen again as long as there is contestation over tolls, nor can the new round of renewable energy go ahead as long as the minister refuses to sign the contracts.
If infrastructure investment is to support the recovery, then SA needs to start, urgently, with a handful of projects that will make a difference. In the end, though, it’s not a project pipeline we need. Any investor willing to put big money into long-term projects will want to know if SA has a crisp plan of action, with timelines, to get itself out of its economic crisis. Ramaphosa needs to tell us what he’s going to do, sooner rather than later.