The fifth webinar of the Sanlam Investments Critical Conversations thought leadership series, “Infrastructure for Good: The Public-Private Edition”, focused on the role of infrastructure in driving South Africa’s economic recovery. EBS Advisory shares key insights on 3 discussion points from the webinar:
- Value in Infrastructure
- Crowding in the Private Sector
- Blended Finance and Public-Private Partnerships
Value in Infrastructure
Most of us are aware that infrastructure is the fundamental physical and organisational structures required for the operation of an organisation and society. Well-developed infrastructure integrates national markets, powers businesses, connects workers to their jobs, creates opportunities for struggling communities, and protects the nation from an increasingly unpredictable natural environment.
Unfortunately, South Africa’s infrastructure has been crumbling. To name a few issues, the dilapidated rail network is forcing more freight onto the country’s already overwhelmed and damaged roads, the power crisis is causing rolling blackouts as Eskom struggles to meet the public’s power demand, there are more than one million learners who are in schools that still use pit latrines, and there are almost 150 000 children who are in schools with no water.
The poor infrastructure is in part due to the lack of infrastructure investment. Public-sector infrastructure spending steadily waned between 2016 and 2020, declining by R82 billion. This represents a decrease of 29%, according to Stats SA.
Nevertheless, webinar panellists were hopeful that the recent government reforms, such as Infrastructure South Africa, are indicative of government’s understanding of the value of infrastructure investment and their increased determination to provide this infrastructure.
Crowding in the Private Sector
The conversation in the webinar also highlighted the private sectors’ lack of South African infrastructure investment. Reasons for this range from infrastructure’s lack of direct revenue generating opportunities in many cases, lack of innovative government incentives to encourage private sector involvement, to fears that corruption in large government directed projects can have devastating impacts on the reputation of private sector players.
For the private sector to be enticed to invest in South Africa, the government and public entities such as Development Finance Institutions need to develop and implement measures that de-risk investment projects. These include technical capacity building, legislative certainty, tax incentives, targeted subsidies, guarantee instruments, and insurance products that create a less risky and more marketable project that can pave the way for private sector involvement.
Blended Finance and Public-Private Partnerships
Panellists also agreed that public-private partnerships are imperative to the successful management of investments. The question now is whether the relationship between government and the private sector can improve to result in stronger public-private partnerships that actually deliver the benefits.
Implemented correctly, the National Infrastructure Plan 2050 (NIP) could be the leading force in establishing the symbiotic relationship between the public and private sector that South Africa requires. The first phase of the NIP 2050 will focus exclusively on energy, freight transport, water, and digital communications infrastructure.
On a global scale, investors, regulators, and society are increasingly pressuring businesses, including the infrastructure sector, to commit to and disclose their sustainable practices. Commitment to sustainable practices and disclosures has become essential to attracting funding.
Recognising the need for disclosure guidance with local relevance, the Johannesburg Stock Exchange (JSE) released its Sustainability and Climate Disclosure Guidance in June 2022. The JSE disclosure guidance aims to promote transparency and good governance, and guide listed companies on best practice in environmental, social and governance (ESG) disclosure.
Globally, the Task Force on Climate-related Financial Disclosures recommendations have been widely used in informing organisations on their climate-related financial reporting. The Global Reporting Initiative has also facilitated a number of businesses in best practice for impact reporting.
The recently published South African Green Finance Taxonomy can also help the infrastructure sector meet sustainability criteria to attract investments. The taxonomy, launched by National Treasury in April 2022, is an official classification of what is eligible to be defined as ‘green’, while also listing the standards that define economic activities as ‘green’.
The journey towards sustainable infrastructure must be a careful, transitional journey. All sectors have different pressure points. At the end of it all, processes for sustainability, such as decarbonisation, should not come at the expense of the more vulnerable of the country’s population.
Concluding remarks focused on the narrative that increased investment in infrastructure leads to greater positive impacts on the country’s population, including increased avenues for job creation as well as the general improvement of people’s livelihoods.
According to International Monetary Fund (IMF), US$1 million of spending in infrastructure can create 10–17 jobs in emerging market economies, and 16–30 jobs in low-income developing countries.
All in all, as stated by one of the panellists of the conversation, “investing in infrastructure is investing in humanity.”
Do you need help determining the right sustainability standards for your strategic goals and investors? Are you looking to demonstrate credible and measurable impact? We can help you. Let’s have a chat.