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Ramaphosa says infrastructure to be placed at heart of South Africa’s postpandemic stimulus

President Cyril Ramaphosa (centre) leading the Sustainable Infrastructure Development Symposium in Pretoria

President Cyril Ramaphosa

President Cyril Ramaphosa

23rd June 2020

By: Terence Creamer

Creamer Media Editor

     

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President Cyril Ramaphosa believes that infrastructure should be the “flywheel” of South Africa’s economic recovery from the growth- and job-destroying Covid-19 crisis and announced on Tuesday that infrastructure would, thus, be placed at the centre of South Africa’s postpandemic stimulus efforts.

Speaking at the inaugural Sustainable Infrastructure Development Symposium South Africa (Sidssa) – hosted as a hybrid event, with the 681 attendees participating physically at the Union Buildings, in Pretoria, and virtually – Ramaphosa said that shovel-ready projects would be prioritised so as to ensure that “ground is broken as soon as possible”.

Speaking ahead of the release, by Finance Minister Tito Mboweni, of a Supplementary Budget, which would show a sharp deterioration in both the country’s growth outlook and in public finances, the President used the symposium to underline the importance of private sector participation in delivering an infrastructure-led recovery.

“In addition to financing, the private sector has an important role to play as builders and operators of public infrastructure,” he said, while lauding the public-private collaboration that had taken place ahead of the symposium, which he described as a “new beginning for infrastructure development” in South Africa.

Through the Sidssa process, led by The Presidency’s Infrastructure and Investment Office head Dr Kgosientsho Ramakgopa and Public Works and Infrastructure Minister Patricia de Lille, 276 projects were evaluated and a “credible and robust project pipeline” of 88 investment-ready projects identified.

The pipeline included projects in the network industries of energy, water, transport and information and communication technology infrastructure, as well as human settlements, agriculture and agroprocessing.

To facilitate the entry of both private finance and skills in delivering the projects, Ramaphosa acknowledged the need for clear policies and institutional frameworks, which, together with bankable investment opportunities, were critical to incentivise private investors.

“Therefore, we are listening to our domestic private sector needs and requests to deal with blockages to greater investment.”

He said the Covid-19 pandemic, which would result in the South African economy contracting by at least 7% this year, had underlined the need to revive infrastructure investment, owing to its positive economic, employment and social multiplier effects.

LIFTING GROSS FIXED CAPITAL FORMATION

The National Development Plan envisages gross fixed capital formation rising to 30% of gross domestic product (GDP), but the figure had slumped to about 16% even before the onset of the pandemic.

The crisis, the President added, also provided greater impetus for the implementation of the key reforms necessary to transform the economy to support inclusive growth.

“The Minister of Finance has put forward a package of reforms to address macroeconomic imbalances and boost long-run growth as the crisis eases, to lower borrowing costs and provide additional space for infrastructure investment to occur.

“The recovery package is intended to contribute to the speed at which South Africa can emerge from the crisis and improve the capacity of the economy to deliver sustainable, inclusive growth.”

He also revealed that government was looking at policies that facilitate economic recovery, such as: introducing stimulus packages that boost government’s infrastructure spending; creating financing instruments that provide liquidity, bridge financing, or debt restructuring instruments; as well as guarantee products and funds.

This Sidssa methodology will also determine three pathways for project funding, including commercial funding, blended financing and fiscal allocations. In addition, government was considering raising a so-called green bond to finance projects that would help contribute to its environmental and climate commitments.

POSITIVE REACTION

Business welcomed the priority being given to infrastructure in government’s recovery plan, with the Black Business Council’s Sandile Zungu describing it as a key lever for supporting the recovery of the economy post-Covid-19.

“We are sold on this ideas that an infrastructure-led economic revival is what should be embraced,” Zungu said.

African Development Bank president Akinwumi Ayodeji Adesina appealed for South Africa’s infrastructure focus to extend to crossborder infrastructure, particularly in areas of transportation and energy.

Adesina also commended South Africa’s renewable energy procurement programme, which he described as the best on the continent. However, he said money had been “left on the table”, with the $518-million Redstone concentrated solar project having been procured, but never developed after Eskom withdrew from signing the power purchase agreement.

New Development Bank (NDB) VP Leslie Maasdorp, meanwhile, urged South Africa to turn to multilateral development banks lenders which were “designed for crisis situations”.

“We are institutions that have a mandate to be countercyclical. During moments like this where the traditional private financial sector contracts in terms of their availability of credit, we expand our lending,” Maasdorp said.

The NDB had already approved a $1-billion Covid-19 emergency loan to South Africa, which would be used to roll out the country’s healthcare response to the disease and provide a social safety net to alleviate the economic impact of disease containment measures on vulnerable individuals.

$1.5BN MORE FROM NDB

“In a matter of days, we will be disbursing the funds to South Africa,” he added, noting that the funds came for a larger $10-billion Covid-19 programme set up to support the five Brics countries of Brazil, Russia, India, China and South Africa.

However, he said there was another $1.5-billion available for medium- to long-term economic interventions and that he anticipated that the NDB would co-design a plan for utilising the funding in a way that mobilises further private resources for “real, productive economic infrastructure”.

“We can use our funding as a catalyst to crowd-in more funding from the private sector,” Maasdorp said, adding that the NDB was also prepared to make its funding available to South Africa in rands rather than dollars.

South African investment envoy Jacko Maree stressed, however, that to ensure infrastructure implementation, required that the private sector be “liberated to do what it does best”, while fast-tracking a policy framework that made it possible for public-private partnerships to proceed.

“We’ve been talking about this stuff for years and we now need to get it done very quickly,” Maree said, while appealing for certainty to be provided that the infrastructure push was not a mere “flash in the pan”.

“We all know that our construction companies are in terrible trouble, our engineering companies are in trouble, our steel companies are in trouble and our cement companies are in trouble. They can only re-tool, fix and re-engineer themselves if they know there is going to be a sustained round of projects,” Maree averred.

He also stressed that, with South Africa’s debt-to-GDP ratio trending towards 100%, there was no way for government to finance the infrastructure that was required.

“Yes, the programme has to be State-led, but they have to be financed by the private sector and the development banks.”

Business Unity South Africa’s Martin Kingston said that the current crisis represented a “golden opportunity” to build a strong relationship between the public and private sectors, but added that addressing the fallout could not wait until after the pandemic.

“The only way to address the challenge is by working together in solidarity; and working together in solidarity is a public-private partnership writ large.”

Edited by Creamer Media Reporter

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