Infrastructure spending now a ‘must do’ for SA

Listen to James Formby's interview with Bruce Whitfield of 702's The Money Show here: https://www.702.co.za/articles/382632/infrastructure-spending-now-a-must-do-for-south-africa

Article: Infrastructure spending now a ‘must do’ for South Africa

Already facing recession before the Coronavirus outbreak, South Africa is now facing an icy economic winter which means the country has little choice but to sharply increase spending on infrastructure to try to get some growth going.

James Formby, Chief Executive Officer of RMB, said the that South Africa needs to urgently start mobilising the Infrastructure Fund to make a meaningful improvement to the South African economy.

The Infrastructure Fund was announced in 2018 as part of government’s Economic Stimulus and Recovery Plan with a commitment of creating a fund size of R100bn over 10 years. Details since then have been scarce. We understand it is to be administered by the Development Bank of South Africa (DBSA) and a head has now been appointed.

“Infrastructure by its nature stimulates growth and jobs and boosts GDP while creating lasting benefit to communities,” said Formby. “Infrastructure spend has a strong multiplier effect on the economy in general.”

“People need to design, build, finance, operate and maintain these projects for a long time. In particular, Public Private Partnerships (PPPs), already so successful in South Africa, have high requirements for manpower.”

Indications are the Infrastructure Fund is a long term initiative and it will be some time before the fund’s ambitions are announced but South Africa cannot afford to wait.

“We don’t have much time to get things moving, we need to be bold. The Infrastructure Fund is expected to focus on key sectors identified by Government such as water, transport, student accommodation and energy but we need to ensure priority is given to those projects which improve the lives of many people. The private sector needs to be consulted too as they stand ready to help.”

The government should not try to assume the full burden of infrastructure spend. The financial sector is able to assist alongside large developmental funding institutions. This is a key way for government to leverage its available debt capacity which is quite limited.

The banks all have dedicated infrastructure financing teams and have the expertise to help get this fund off the ground. Greater momentum can be achieved if government partners the financial sector.

In 2008, South Africa’s investment ratio was 23% of GDP. Now it’s only 18.5% and falling. “The case to dramatically boost investment is plain,” he added.

In late March this year the International Monetary said that despite Africa as a whole having very high levels of debt, it should 'spend' its way out of its economic malaise by expanding fiscal deficits to counter the impact of the corona shock.

“It's unusual advice from the IMF but investing in lasting infrastructure is much better than just spending for the sake of it,“ Formby concluded.

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Contact:

Joandra Griesel: joandra.griesel@rmb.co.za