Delivering the trillion rand solution

Panel summary:

South Africa’s infrastructure, from roads to rail, water reticulation, power generation and transmission, social housing and health care is creaking and falling apart. This comes at a massive cost to economic growth and social wellbeing.

Rectifying this dire situation has been identified as a critical priority that will require the public and private sector to work together to deliver infrastructure projects that are useful, well designed and bankable.

South Africa’s Infrastructure Plan outlines some R2.3 billion worth of priority investments. This is the trillion rand opportunity that has been placed before the investment industry.

Ninety One director, Alastair Herbertson spoke to Catherine Koffman, Group Executive: Project Preparation, Development Bank of Southern Africa and Bashier Omar, portfolio manager at Ninety One, at the inaugural Infrastructure Conference, about what is being done to bring projects from conception to bankability, and what it is that makes them attractive to the long-term funding industry.

The country’s critical infrastructure shortage has not come about from a lack of talking and trying. South Africans’ have been talking about infrastructure development for 30 years, however the speed and quality of implementation has disappointed, and the number of investible opportunities has dwindled.

“It [facilitating infrastructure investment] is the most frustrating, jaw-clenching, fist to the heavens task that I have done and will continue to do because it makes such a huge impact in people’s lives,” says Catherine Koffman, whose Project Preparation Unit focuses on early stage project development within South Africa’s infrastructure space.

“Infrastructure, at the most basic level, restores dignity to people and changes people’s lives. It’s definitely an economic enabler and water, which is our new crisis, is definitely an economic enabler. We have seen companies close down in different provinces because they don’t have access to a secure water supply.”

There are many reasons for the lack of infrastructure investment in South Africa, but a key factor is the lack of skills needed to plan, budget and execute projects in the public domain. Addressing this has been a priority of government for several years and has led to several initiatives to address the identified shortfalls. One such initiative was the development of the Investment and Infrastructure Office to co-ordinate and align the work of various structures responsible for infrastructure development.

Organisations like the DBSA work with this Office to bring projects to fruition. “We will take a project from early stage project preparation to the actual lending team; we also operate as an implementing agency for state-owned entities which don’t have capacity in-house to manage construction contracts,” says Koffman.

For instance the project preparation team might work with a municipality to develop an infrastructure master plan, in the process unlocking budget allocation for the projects. It works with SOE’s and private developers providing the technical and financial assistance to take pre-feasibility studies to the point of bankability; or it may support emerging contractors with working capital facilities for construction contracts.

What is important is developing repeatable projects at scale. “This is where you are going to see a lot of activity,” she says.

What makes an infrastructure opportunity viable?

It goes without saying that for portfolio managers, the objective is build a portfolio that has longevity and is resilient across economic cycles. “We are taking a longer-term view, thus the bankability is critical,” says Ninety One’s Bashier Omar. But equally, whether it is in energy, water, or transport, the credibility of the parties involved is critical. “When you take a long-term view, you want to be comfortable that you have assessed the risk appropriately.”

There are many technical and financial factors to consider, he says, which makes the compilation of the funding team important. A depth of skill on the funding team – from engineers, to infrastructure specialists, and accountants – is essential to making an informed decision.

“We know there is a massive pipeline. We know the private sector has a role to play. There is a R2.15 trillion funding financing gap in the National Infrastructure Plan. It is now for us to get involved and ensure that we finance bankable projects because there is a dire need to address the infrastructure deficit,” says Omar.

What is happening on the ground?

As a result of the exhaustive background work being undertaken, a pipeline is building. For instance a National Water Program is being developed. “It is like the IPP Office but for water. This is a massive program that is coming out and we are hoping to finish the first phase of recruitment in the next month,” says Koffman.

Student accommodation, and the critical underinvestment in South Africa’s hospitals and clinics are focus areas. As is the effort to find solutions to the under-investment in the national transmission network.

What is critical is that co-ordination is improving – between government and business, and within government structures. “There are green shoots and I am encouraged that there is a concerted effort within government to coordinate all these activities,” concludes Koffman.