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South Africa’s best weapon to combat low GDP, poverty and unemployment is investment into impactful, resilient and sustainable infrastructure projects.
How should government and the private sector go about funding and managing the R6 trillion in infrastructure investments that need to take place in South Africa by 2030 as partners?
This question was the centre of the debate among stakeholders from the private and public sectors who were challenged to imagine the country under an ‘Infrastructure for Good’ theme at the Sanlam Investments Critical Conversations event.
The event highlighted the need for private investors investing in local or offshore large infrastructure projects. Once this is achieved, the local retirement fund industry could play a significant role in addressing the country’s infrastructure investment shortfall.
“If we are serious about fighting unemployment and poverty, infrastructure is the best weapon in our arsenal,” Ockert Doyer, head of credit and portfolio manager of the Sanlam Investments Sustainable Infrastructure Fund, said.
Government has capacity for about two thirds of this sum, with the ‘gap’ likely to come from the private sector, including retirement fund assets, he said.
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Catherine Koffman, group executive: project preparation at the Development Bank of South Africa (DBSA), noted that there is broad consensus that green, impactful and resilient infrastructure investment can help to handle the country’s challenges.
“South Africa’s socioeconomic ills are very complex and I am not sure that infrastructure investment solves it all, but quality infrastructure is a key differentiator between developing and developed countries. The requirement is that large infrastructure projects must tie in with global environmental and social themes or risk becoming stranded assets,” she pointed out.
Ndabe Mkhize, founding chairman of the Asset Owners Forum South Africa, noted that local retirement funds invested less than 10% of their assets in infrastructure projects and private markets, compared to around 26% in developed markets. The Asset Owners Forum is working to improve this outcome.
“We have to see this allocation increasing and government has intervened by changing Regulation 28 of the Pension Funds Act to allow pension funds to invest more. Improvements to the tax dispensation and a renewed focus on ESG factors in infrastructure projects would go a long way to getting the private sector on board.”
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Regarding matching retirement fund liabilities, Mkhize said much of the private market infrastructure universe already offered lower risk than some investment grade corporate debt. “Local savers have to catch up with the rest of the world when it comes to putting a larger chunk of their money into such opportunities.”
Their reluctance stemmed from frequent horror stories about the mismanagement of big budget public projects. “Private sector involvement in blended finance arrangements is an excellent way to handle retirement fund trustees’ concerns about governance, by bringing extra governance,” Doyer said.
He said if the private sector invests in an infrastructure project, it takes a keen interest in monthly or quarterly operational reports and ensures that the project achieves what it set out to do as it has to be responsible with the pension funds at its disposal.
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Another concern that surfaced during the event was that the capital raised on the international stage is increasingly coming with strings attached, such as the US$8.5 billion secured at the COP26 conference in Glasgow, Scotland, in November 2021.
The funds are earmarked to assist South Africa in reducing its global greenhouse gas emissions, which means, among other things, transitioning away from coal-based electricity.
Doyer said this narrow focus presents difficulties for a country where so much of the economic activity attaches to industries up and down the fossil fuel value chain.
“It is not just coal miners and power producers that will be affected by net-zero. The engineering, logistics and manufacturing firms that support them and businesses benefit from Eskom’s dirty power.”
He believes the entire South African landscape must adjust and react as global action on climate change and net-zero gains traction.
“We cannot tackle environmental risks without understanding that each decision in that area has social consequences. Our focus must remain on achieving a just transition.”
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Doyer’s sentiment was echoed by Koffman, who said that it was very important to decarbonise South Africa’s economy gradually, so that nobody is left behind. She added that economic development and sustainability are not mutually exclusive. A country could not have one without the other.
“We will face problems if we do not transition, but fortunately the world is alive to a transitioning journey. It will be up to government in partnership with the public sector, and assisted by South African savers, to ensure that everyone is on board for the just transition journey.”
Doyer pointed out that the quality of a country’s infrastructure influences its quality of life.
“By lifting the level of investment in electricity, healthcare, schooling, transport and other critical infrastructure, we have a real chance of increasing the country’s economic capacity and improving the day-to-day lives of all its citizens.”
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