Aug 21, 2012
Hybrid funding approach needed for infrastructure projectsBack
Construction|Johannesburg|Maputo|Africa|Energy|Housing|PROJECT|Projects|Resources|Water|Africa|Mozambique|South Africa|Energy|Equity Finance|Logistics|Mezzanine Finance|Transport|Infrastructure|Jacob Zuma|Nhlanhla Nene|Water
© Reuse this
“The optimal financing structure needs to be tailored on a case-by-case basis to fit the specific nature of the infrastructure project,” he stated, adding that the same applied to the repayment model.
Nene said that although infrastructure projects would remain heavily reliant on public funding, government had limited capacity to pay for everything, necessitating the role of the private sector.
“Government expenditure is limited by how much tax revenue it can collect without hurting economic growth, and how much debt we can borrow.”
He explained that these abilities were being constrained by the weak global economic conditions.
“We need to think out of the box, the potential exists for equity finance, mezzanine finance, ‘build-operate-transfer’,” Nene noted.
Further, he told the summit that South Africa’s R3.3-trillion infrastructure plan, announced by President Jacob Zuma in his February State of the Nation address, created significant opportunities for banks, which would have to take on a long-term vision by offering long-term lending.
Government has identified 17 strategic integrated projects in sectors such as energy, transport and logistics to schools, hospitals and nursing colleges to be constructed between now and 2020.
Nene said a conversation between banks and government would have to be initiated. “We should talk constructively and openly about the challenges of growth and what we should do to build the kind of South Africa that is envisioned in the National Development Plan [NDP].”
Last week, the National Planning Commission handed over its final report to the President in Parliament.
Nene emphasised that infrastructure development was important in raising South Africa’s potential growth rate. By some estimates a one percentage-point increase in infrastructure investment would raise long-run gross domestic product (GDP) by about 1.3% and employment by about 0.7%.
Further, the Minister said that projects of which the costs could be covered equitably, and those that were implementable, would have to be prioritised, as resources were limited.
“For social infrastructure, this would mean prioritising backlogs, for example housing, basic services, over-crowded classrooms. For economic infrastructure, it means unblocking the largest supply constraints, of which the symptoms include traffic congestion, rising property prices, increasing input prices and inability to fulfil export orders,” Nene stated.
Also addressing delegates, Banking Association South Africa MD Cas Coovadia warned that without significant intervention, infrastructure spent as a percentage of South Africa’s GDP would drop from the current 9.1% to 8.1% by 2013.
He said government’s lack of capacity to implement projects, as identified by the NDP and the New Growth Path, would have to be overcome.
Coovadia pointed out that spatial mapping and cost determination, carried out by the Presidential Infrastructure Coordinating Commission, reiterated the need for private sector equity in project funding.
However, he expressed concern that real engagement between public and private sectors was lacking.
Coovadia said the financial sector would have to be considered as a strategic partner in enabling the sustainability of infrastructure projects.
“We need sustainable funding models for these projects…engagement must take place earlier, before the costing and funding models are determined.”
He added that the financing parties would have to compile combined hybrid (public and private) financing models before approaching the government.
Meanwhile, Coovadia was optimistic about the adoption of a regional infrastructure master plan by Southern African Development Community (SADC) leaders, which was approved during a summit in Mozambique’s capital, Maputo, at the weekend.
The plan, which will be implemented over a 15-year period, is aimed at advancing regional trade through the construction of cross-border infrastructure that will connect all SADC states in areas of energy, water, information and communication technology, as well as transport.
Edited by: Mariaan Webb© Reuse this Comment Guidelines (150 word limit)
Other Intellectual Property Law News
Pharmaceutical companies typically invest substantial amounts of money into research and development. Their research, however, is not only aimed at discovering new active pharmaceutical ingredients (APIs). Instead, some companies make small modifications to existing...
A controversial patent process known as ‘ever-greening’ is being carried out by many pharmaceutical brands, and is preventing medications from being made available as generics, affecting many South Africans who are struggling to keep up with the cost of...
It has been over six years since the government began developing the draft policy on intellectual property (IP) that has been the focus of major public controversy following the PharmaGate scandal, which involved a leaked pharmaceutical industry email by Knowledge...
Recent Research Reports
Real Economy Year Book 2014 (PDF Report)
This edition drills down into the performance and outlook for a variety of sectors, including automotive, construction, electricity, transport, steel, water, coal, gold, iron-ore and platinum.
Real Economy Insight: Automotive 2014 (PDF Report)
This four-page brief covers key developments in the automotive industry over the past 12 months, including an overview of South Africa’s automotive market, trade figures, production and the policies influencing the sector.
Real Economy Insight: Construction 2014 (PDF Report)
This five-page brief covers key developments in the construction industry over the past 12 months. It provides an overview of the sector and includes details of employment in the sector, infrastructure and municipal spending, as well as insight into companies’...
Real Economy Insight: Electricity 2014 (PDF Report)
This five-page brief covers key developments in the electricity industry over the past 12 months, including details of State-owned power utility Eskom’s generation activities, funding and tariffs, independent power producers and prospects for the sector.
Real Economy Insight: Road and Rail 2014 (PDF Report)
This six-page brief covers key developments in the road and rail industries over the past 12 months, including details of South Africa’s road and rail network and prospects for both sectors.
Real Economy Insight: Steel 2014 (PDF Report)
This four-page brief covers key developments in the steel industry over the past 12 months. It provides an overview of the global and South African steel and stainless steel markets, South Africa’s major steel producers and events that have shaped these markets.
This Week's Magazine
South African construction company Group Five says work on the rehabilitation of the 800 km stretch of the Plumtree–Mutare highway, in Zimbabwe, should be completed by the end of this year. Giving evidence before the Parliamentary Porfolio Committee on Transport...
The Space Operations division of the South African National Space Agency (Sansa) revealed on July 17 that it had supported the successful launch of the US National Aeronautics and Space Administration’s Orbiting Carbon Observatory-2 (OCO-2) satellite on July 2. The...
Phase 1A of Johannesburg’s Rea Vaya bus rapid transit (BRT) system should carry around 42 000 people a day, while it was been expected that Phase 1B, rolled out last year, would add another 60 000 daily passengers. However, the entire system is currently carrying...
A stormwater project in Bedforview, east of Johannesburg, has stalled for eight months after project managers in the Ekurhuleni municipality resigned and municipal managers were placed on special leave without designating replacements. Construction to reinforce the...
The design of the Beit Bridge border post is the biggest impediment to efficient freight movement between Zimbabwe and South Africa, says Cross-border Road Transport Agency CEO Sipho Khumalo. Beit Bridge is the busiest border post in Africa. A research study on the...