Now to the next item in the order of importance among the
summarised aspirations of the NDP, as I see it: the financing
of infrastructure. If you have travelled across countries in the
African continent, you will appreciate the high level of public
infrastructure deficit that is commonplace in Africa. You will also
be right to count South Africa greatly blessed among African
countries in terms of infrastructure supply and sophistication.
Yet it is also common knowledge that the reach of available
infrastructure in South Africa is an increasing concern, including
dwindling status of key social infrastructures such as health care
and education. Thus, successfully updating these and developing
badly needed additional economic ones such as electricity and
transportation, will increase inputs for job creation and reduce
the overall cost of production.
Incidentally, infrastructure development is also tainted with the
problem of South Africa’s two-in-one economy, albeit to a lesser
extent than the SME space. For instance, the ease of financing
infrastructure development in Gauteng province will not be the
same as in Limpopo province; even within provinces there exist
huge disparities between cities, townships and rural settlements.
Accordingly, financing models that take cognisance of varying
financial markets’ development levels are recommended.
Beyond government appropriations and state-owned enterprises
(SOEs) approaches to infrastructure development in South Africa,
public-private partnership is increasingly fancied as an alternative
that partly unburdens governments and decouples the pace of
infrastructure development from the political ticket. Two private
sector-based models appear appropriate for South Africa’s less
developed segment of the economy and the developed segment,
respectively: project finance and project or infrastructure bonds.
Project finance is generally initiated via a special-purpose
vehicle (SPV), equity owned by a few firms that usually have
requisite knowledge of infrastructure projects. The SPV in turn
sets up loan syndications, as needed, to fund projects, with the
syndicate including domestic and international banks. And the
loans provided by these banks are non-recourse debts.
Because ownership of the SPV is independent of financed
projects and syndicate loans are non-recourse debts, (1) project
risks are assigned to syndicate members better able and willing
to bear them; (2) the lead banks have the latitude to become
project insiders, as the sponsoring SPV, to structure from the
onset detailed contracts, such as those of venture capital, that
ensure appropriate, effective governance. In other words,
project finance is best suited to funding public infrastructure
development in sections of South African society shunned by
traditional financial sector firms.
Finally, we turn to the project or infrastructure bond model,
which sits well with the developed segment of the economy.
Not only does South Africa have a first-rate stock market and
banking industry, it has also developed one of the focused public
debt (bond) markets in Africa. The bond market facilitates
private sector funding of public infrastructure development by
effectively accessing available surplus funds from far and wide,
‘...public-private partnership
is increasingly fancied as
an alternative that partly
unburdens governments
and decouples the pace of
infrastructure development
from the political ticket.’
with the expected future revenue of the infrastructure being the
sole source for servicing the project bond, without recourse to
government revenue or guarantee. Any and all effort at deepening
the public debt market will equally enhance the facilitation of the
infrastructure bond market .
In closing, let us note that this discourse has examined primarily
the private sector’s possible intervention in aiding the NDP achieve
its aspirations. Among other pertinent private sector organisations,
The Banking Association South Africa, under its exemplary focused
and successful leadership of Managing Director Cas Coovadia, has
plenty of opportunities in the above laid out possibilities to continue
facilitating the financial sector’s role in the national development
agenda. The numerous heavy lifting required of the government in
making the NDP work, by way of the financial sector, is for another
day. And it needs to be explored as well. By Professor Kalu Ojah ■
FOOTNOTES
1
See Basson, N. and Ojah, K. “Macroeconomic determinants of
banking efficiency: An empirical analysis of South Africa against
the rest of the world “, SSRN Working Papers, 2011. http://ssrn.
com/abstract=1862681
2
Ojah, K. “Financial inclusion in South Africa: an unfinished
conversation”, Wits Business School Journal, 2013, pp. 64-65.
Kalu Ojah is Professor of Finance at Wits Business School.
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