Ramaphosa speeds up funding for infrastructure

President Cyril Ramaphosa is moving at speed to try and secure funding for infrastructure development in the country, including for the Infrastructure Fund.

Ramaphosa disclosed in his State of the Nation Address (Sona) last week that the Infrastructure Fund has a project pipeline of potential investments of over R700 billion over the next 10 years.

To assess the progress of efforts to intensify infrastructure investment, Ramaphosa met with key stakeholders – including government financiers, CEOs of commercial banks, leaders of multilateral development finance institutions and representatives from organised business, along with infrastructure-orientated industry players – under one roof for the first time on Tuesday.

In his opening remarks to the meeting, Ramaphosa said overall infrastructure investment in South Africa needs to grow from about 13% of total spending to 30% by 2030 to achieve the National Development Plan (NDP) growth targets.

“Multilateral development banks, development finance institutions and the private sector all have a critical role in financing and implementation of this investment,” he said.

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Construction industry bodies, companies and analysts last week welcomed Ramaphosa’s Sona statement that the Infrastructure Fund has a project pipeline with potential investments of over R700 billion over the next 10 years but cast serious doubt about the government’s ability to implement these projects and revive the beleaguered construction sector.

Ramaphosa stressed on Tuesday that the state will have to galvanise all of society behind an orchestrated, comprehensive and bold effort to turn around the economic fortunes of the country.

He said an aggressive public sector build programme presents a plausible, immediate and universally tested intervention to achieve the desired economic turnaround.

Ramaphosa announced that he has instructed the Investment and Infrastructure Office in the Presidency to convene a Sustainable Infrastructure Development Symposium with the aim of immediately producing a suite of projects that are of national significance and will enhance quality, sustainability and capacity.

“They should be projects that have the potential to drive economic growth, attract significant private sector investment and help in meeting the government’s strategic objectives,” he said.

Interventions

Ramaphosa also announced a five-pronged intervention to address barriers to infrastructure investment.

The interventions include:

• The creation of technical and financial engineering capacity
• The development of a detailed infrastructure investment plan
• Initiation of policy and regulatory reforms
• A rethink of the public sector financing space, and
• Revising the public sector infrastructure institutional framework.

Ramaphosa reiterated that infrastructural investment is a critical driver of future growth in an economy that has been stuck in a low-growth trajectory for the past 10 years. 

He admitted that the haemorrhaging of technical engineering and financial skills in the public sector has contributed significantly to the bleak state of public infrastructure.

“Decimation of these necessary skills in the public sector has undermined planning, prudent asset management, and the production of a credible and transparent project pipeline,” he said.

“The net effect has been the collapse of industry, divestment from the country and erosion of funder confidence. This is a picture we want to correct and correct immediately.”

Ramaphosa said it is unlikely that government will recreate the lost skills to the required levels in the immediate term and it is therefore important to create a legally permissible transitional dispensation – premised on private sector collaboration – to ramp-up state capacity in the technical and financial areas. 

Wants a ‘visible’ pipeline of projects

He stressed that a detailed infrastructure investment plan should provide a positive signal to investors and lenders, revive the stagnant construction industry, and improve skills and institutional capacity across line ministries and sub-sovereign entities to generate a visible pipeline of projects.

“It should outline a public-private partnership [PPP] framework and remove policy bottlenecks in engaging with the private sector,” he said.

“It should strengthen preparation of bankable projects, mobilise long-term finance and implement projects through comprehensive contract management towards achieving sustainable infrastructure delivery and service.”

Regulatory universe ‘prohibitive’

Ramaphosa admitted that South Africa’s public sector policy and regulatory universe is among the most elaborate and prohibitive in the world and has the unintended consequences of delaying and derailing investments at great cost to the economy. 

“There is a need for a speedy, robust and transparent decision-making process. The public-private partnership legal environment requires revision, and innovative ideas should be accommodated in the procurement space,” he said. 

Ramaphosa announced the creation of an Infrastructure Fund in September last year as a way of crowding-in private sector participation in the roll-out of public infrastructure. 

The aim of the fund is to improve the quality and rate of infrastructure investment by strengthening project preparation and governance so that there is a visible pipeline of projects and to close the viability gap and provide blended finance for projects that have social and economic elements and/or to address market failures. 

“This will ensure that the government strategically uses the limited fiscal resources to mobilise financing from the private sector, development finance institutions and multilateral development banks,” he said.

Ramaphosa said it is critical to review the distribution of functions and roles across different institutions and optimise processes and controls to ensure optimal infrastructure investment. 

This is because the optimal roll-out of infrastructure is impeded by functional fragmentation, institutional overlap and unclear processes, incentives and controls.

Presidency as the strategic centre

Ramaphosa said the recently-established Investment and Infrastructure Office in the Presidency will spearhead the revision exercise with a view to ensuring better coordination and alignment and positioning the Presidency as the strategic centre for investment and infrastructure in the country.

Ramaphosa will be releasing an Infrastructure Investment Policy Statement, which among other things, will provide an “eco-system” within which good infrastructure investments, including PPPs, are undertaken, remove “institutional confusion” and create an oversight mechanism.

He said this policy will help build consensus, and provide clarity to all stakeholders on how infrastructure projects should be conceived, how government support mechanisms should be structured, and how the infrastructure project life cycle should be streamlined.