Infrastructure fund to be fleshed out in February budget

Wednesday, October 24, 2018

The specifics of the infrastructure fund, announced as part of South Africa’s stimulus package, will be announced in the February 2019 Budget.

“The infrastructure initiative announced by the President [Cyril Ramaphosa] builds on efforts to transform public infrastructure provision. It will support projects with “blended” finance, combining capital from the public and private sectors and development finance institutions.

“Work to design the fund is under way, with assistance from the private sector and multilateral development banks,” said Treasury on Wednesday.

The President announced the stimulus and recovery package at the Union Buildings in Tshwane in September. It aims to address low economic growth and high unemployment.

The unveiling of the stimulus package came at a time when data released by Statistics South Africa revealed that South Africa had fallen into a technical recession in the second quarter with the economy shrinking by 0.7% quarter on quarter following a revised 2.6% contraction in the first quarter of 2018.

The stimulus package focused on five interventions including implementing growth-enhancing economic reforms, the establishment of an infrastructure fund and well as tackling urgent matters in education and health.

In the Medium Term Budget Policy Statement (MTBPS) government announced that increased investment in social and economic infrastructure will be a focus of economic recovery over the medium term with public sector infrastructure plans estimated at R855.2 billon over the medium term.

Of this, state-owned companies will account for R370.2 billion while general government accounts for the remaining R485 billion, mainly in the form of conditional infrastructure grants.

Tabling the MTBPS in Parliament on Wednesday, Finance Minister Tito Mboweni said too many projects are poorly prepared for.

“A central policy objective is to promote an increase in capital investment by the private sector,” stated the policy statement, which highlighted several interventions that will be made to increase the efficiency of existing public infrastructure spending.

These include addressing weaknesses in infrastructure planning, government, development finance institutions and private-sector partners have begun work on a project preparation facility.

“Government will report on the progress of these deliberations in the 2019 Budget. The fund is expected to identify innovative financing mechanisms and allow for accompanying regulatory reforms,” said the MTBPS document.

The fund is expected to identify innovative financing mechanisms and allow for accompanying regulatory reforms.

Framework for investors

Meanwhile, government also announced that a framework for investors to assess potential long-term returns on public infrastructure projects will be developed.

This will support funding from development finance institutions, commercial banks and pension funds.

Innovative financing mechanisms - such as initial capital payments, current subsidies or guaranteed offtake agreements - may also be proposed alongside regulatory reforms.

“Government will publish a list of projects suitable for private-sector and development finance support,” it said, adding that this will be evaluated on matters such as whether the project will have clear social benefits. -