Aug 31, 2012
Hybrid funding approach needed for infrastructure projectsBack
Johannesburg|Africa|Housing|PROJECT|Projects|Resources|Africa|South Africa|Energy|Equity Finance|Logistics|Mezzanine Finance|Screen|Services|Transport|Infrastructure|Jacob Zuma|Nhlanhla Nene
© 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, 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).”
Earlier this month, 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 whose 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, the symptoms of which include traffic congestion, rising property prices, increasing input prices and inability to fulfil export orders,” Nene stated.
Also addressing delegates, Banking Association of 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 the 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.
Edited by: Martin Zhuwakinyu© Reuse this Comment Guidelines (150 word limit)
Other News This Week News
Recent Research Reports
Defence 2014: A review of South Africa's defence industry (PDF Report)
Creamer Media’s Defence 2014 report examines South Africa’s defence industry, with particular focus on the key participants in the sector, the innovations that have come out of the sector, local and export demand, South Africa’s controversial multibillion-rand...
Road and Rail 2014: A review of South Africa's road and rail infrastructure (PDF report)
Creamer Media’s Road and Rail 2014 report examines South Africa’s road and rail transport system, with particular focus on the size and state of the country’s road and rail network, the funding and maintenance of these respective networks, and the push to move road...
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.
This Week's Magazine
In the next 20 years, it was expected that, in Africa, more people would live in cities and towns than in rural areas, United Nations Habitat executive director Dr Aisa Kirabo Kacyira said at the Human Settlements Indaba that took place earlier this month in...
Tough-talking Human Settlements Minister Lindiwe Sisulu has committed government to building 1.5-million low-cost houses over the next five years, telling the Human Settlements Indaba in Johannesburg on Wednesday that the State would achieve this target through the...
Over the past 20 years there has been persistent concern about deindustrialisation in South Africa, as well as the fact that locally produced manufactured products have been increasingly displaced by imports.
Financial agreement for Ghanian independent power producer (IPP) Cenpower Generation Company’s $900-million, 350 MW combined-cycle gas-turbine power plant was finalised earlier this month, paving the way for the project’s construction to begin before 2015 in Tema,...
The revenue implications for South Africa of ‘base erosion and profit shifting’ by corporate taxpayers are firmly in the crosshairs of the Davis Tax Committee (DTC) and Judge Dennis Davis hinted last week that recommendations were being considered to “detect and...