Old Mutual fund urges South Africa to focus on power

A R32-billion infrastructure fund owned by Old Mutual said South Africa should start with power as it embarks on a R2.3-trillion drive to lure private investment into infrastructure over the next decade.

Electricity is South Africa’s most urgent need and the country has experience of approving renewable energy projects with a prior programme attracting R209-billion of private investment, Vuyo Ntoi, co-MD of African Infrastructure Investment Managers (AAIM).

“Energy is our biggest low-hanging fruit,” he said in an interview on 26 August. “We have an energy crisis and we have lots of project developers who have experience in implementing projects in South Africa. Those are the easiest wins.”

The government programme, unveiled by President Cyril Ramaphosa in June, seeks investment in everything from power plants to low-cost housing, using finance tools ranging from bank loans to green bonds. On 27 July, the state issued a list of 55 projects it says are ready for investment.

Ntoi isn’t so sure. The government needs to develop the capacity to identify and approve the right projects and the right funding solutions, he said.

“They certainly aren’t shovel ready,” Ntoi said. “Don’t get me wrong, I think a lot of work has been done but there is that lack of implementation expertise.”

Evidence of that came this week when the infrastructure office in the presidency sent a letter to AIIM seeking the secondment of investment professionals to help it with its plans, he said.

Further barrier

A further barrier comes in the way infrastructure projects have mostly been funded in South Africa, with banks providing almost all the money through project finance.

It will take time to develop an infrastructure bond market and regulations governing investment rules for pension funds may need to be altered to direct more funds to infrastructure, he said. And then you have the poor state of many South African state-owned companies, such as electricity utility Eskom, which will need further guarantees from an already cash-strapped government, Ntoi said.

When you are dealing with “technically bankrupt state-owned enterprises, as the counterparties you need some sort of guarantee”, he said. “Government’s ability to provide these guarantees is limited.”  — Reported by Antony Sguazzin, (c) 2020 Bloomberg LP