A partnership between government and private sector has been formed to tackle development backlogs, writes Lynda Loxton
Government and the private sector are investigating innovative financing packages to foot the estimated R170-billion to R230- billion bill to tackle infrastructure backlogs throughout the country.
They met behind closed doors in Cape Town last week to examine various options and, although several technical details still have to be finalised, appear to be keen to co-operate.
But as newly appointed Trade and Industry Minister Alec Erwin warned, neither side should approach this with expectations of a “big bang” that would see overnight changes and results.
Erwin said it was clear the infrastructural needs identified could not be funded only by the national budget, or by the national development finance institutions (NDFIs) such as the Development Bank of Southern Africa.
“Another position argued is to privatise the whole thing and allow the private sector to get on with the job,” Erwin said.
“Rather than adopting either of these extreme positions, government is developing various tailor-made institutional and regulatory measures … in partnership with the private sector.”
He said four basic sources of finance were available. These included fiscal transfers, which could be seen as equity in projects, concessional finance from various multilateral institutions and international sources, development finance from the NDFIs and loans raised on commercial terms from the capital markets.
“The nature of the projects and their risk and revenue profiles will determine the funding mix,” Erwin said.
To make this work, government had to ensure there was effective public-sector debt management, appropriate regulatory frameworks and stable multi-year budgeting.
“All these elements are being put in place,” he said.
Key to this would be the restructuring of NDFIs, which Erwin said were fragmented, lacked policy co-ordination and tended to crowd out capital market operations rather than “crowding in additional resources for development”.
He said the infrastructure programme was a major structural change for South Africa and called for the creation of possibilities that the market itself would not have created.
Government was not well-suited to play a leading role in project financing and the NDFIs should be restructured to be the leading public sector instrument to facilitate development.
He envisaged the NDFIs as acting as a bridge between the budget and private capital and said the private sector also had to “develop new expertise in operating in regulatory environments, taking on longer-term investments and working in a close relationship with the public sector.
“The private sector cannot expect the state to assume all risk while they are only involved in cherry picking (picking only the low-risk, high-profit investment options).”
In his presentation, Standard Corporate and Merchant Bank managing director Jacko Maree said clarity, consistency and certainty on the regulatory framework would be vital for private sector participation.
Both he and Erwin agreed that the NDFIs should, in particular, concentrate on strengthening the ability of local authorities to implement and raise funds for infrastructural projects.
Erwin said the government wanted to give the private sector the confidence that “someone is ensuring that the overall system is working. On the other hand, we do not want to create a situation in which central government will simply bail out local authorities when problems occur.
“This would create a range of implicit guarantees and contingent liabilities which are unacceptable to us and will lead to irresponsible lending and borrowing practices,” he said.
Central to the viability of any investment programme would also be to ensure that ordinary citizens paid for the services provided in any infrastructure projects, while government continued to examine ways of covering the costs of those households that genuinely could not afford even a basic level of service.