“No significant government-led infrastructure project has been initiated since 2018,” said Ann Bernstein, executive director of the Centre for Development and Enterprise, at the release of a new report. This CDE report is based on a high-level workshop between leaders in the financial sector and the senior government officials responsible for the state infrastructure drive.
“There is already a strong concern amongst investors – local and international – about the country’s credibility and capacity to set up fast-tracked projects for private investment. Without speedy action, investors will lose interest and move on,” she said.
“The private sector is willing and able to participate in well-designed, state-led infrastructure projects, but there are no projects coming to market,” Bernstein said.
The workshop showed improved levels of cooperation and understanding between government and business, however, CDE’s report makes it clear that, “turning this spirit of goodwill into a programme of action requires important changes from both business and government”.
Bernstein says, “Business needs to make the requirements of investors crystal clear. This is not a time for mixed messages or coded politeness – as one participant put it, it’s a time to be very frank.”
“Government leadership must stop talk of the imminent arrival of scores if not hundreds of projects,” she said. This is not going to happen.
It would be far better to decide on four or five projects to kickstart investment and partnership. These projects must appeal to private investors, which means risk-related returns on capital for depositors, shareholders, pensioners, and policy holders.
There is an enormous focus on projects developed by the state, but considerable infrastructure could be built by the private sector if policy changes were made. Bernstein argues that: “Done right, key government decisions could unlock private investment at significant scale.”
The 100 MW decision is an important first step to improving electricity supply, but it should not be the end of that process. Dealing with the investment environment for the mining sector will drive new spending in exploration; resolving uncertainties around property rights will lead to more investment in agriculture; making a decision on e-tolls in Gauteng will create certainty for investors in roads; opening ports to private investors and implementing the president’s 2020 commitment to open access by 3rd party operators to the national rail infrastructure could attract considerable investment and signal a welcome new approach.
“Much more urgency in implementing policy reform is required,” said Bernstein, “if we really want private investment that kickstarts economic growth.”
There are important issues that require urgent attention. Government must push through the regulatory changes essential for public private partnerships. “It is hard to understand why this is taking so long. Surely it could be fast-tracked”, Bernstein said.
Projects that are forced to have numerous additional objectives – such as empowerment, localisation, community development, and more – ensure that the delivery of infrastructure is more costly or does not happen.
“Government seems determined to do everything at once but with very limited capacity. The consequence is that we end up doing very little. More efficient ports, reliable trains, new roads or bridges will promote widespread development with very many beneficiaries and that is what we must focus on,” Bernstein explained.
Construction mafias and general lawlessness has to be dealt with. “Construction mafias are local groups that demand a significant portion of the project’s contract, who if thwarted, resort to violence and intimidation to prevent the project from continuing. This is a big hurdle preventing increased private sector investment. They are criminals who deserve the full force of the law if we want to encourage investment and also get the most out of our existing infrastructure.”
Bernstein concludes that: “There are no shortcuts, much as we want them, and infrastructure is not a silver bullet for the country’s ills.
However, getting four or five projects off the ground coupled with the changes required to open up new areas for private investment (rail, power, roads and more) could be a bold signal that SA is determined to act decisively and reform. This is key to attracting new investment. “
Please see the following:
• Report: Accelerating South Africa’s Infrastructure Programme. What is holding us back?
• Executive summary
• Media resources
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ABOUT THE CENTRE FOR DEVELOPMENT AND ENTERPRISE
The CDE is an independent policy research and advocacy organisation. It is South Africa’s leading development think tank, focusing on critical development issues and their relationship to economic growth and democratic consolidation. Through examining South African realities and international experience, coupled with high-level forums, workshops and roundtables, CDE formulates practical policy proposals outlining ways in which South Africa can tackle major social and economic challenges.