Political risk was code in many places for corruption and the top concern of the private sector, which would look at a country’s ranking on the international corruption perception index before investing in it, KPMG said last week.
James Stewart, KPMG’s global infrastructure chairman, said at a roundtable discussion on Friday that feedback received from contractors, developers and investors was that the political risk in South Africa had increased.
South Africa is ranked 72nd out of 175 countries on Transparency International’s 2013 global Corruption Perception Index. It has dropped 34 places since 2001, with half the decline occurring since 2009.
However, Stewart said political risk manifested itself in many ways and could simply be politicians changing their minds, which was of great concern if that affected private sector returns.
Stewart said international companies were also not going to invest in South Africa unless there was sustainable power supply, while high speed broadband connectivity was important to some investors.
“If businesses are looking to invest in certain knowledge-based businesses, then high speed broadband becomes ‘a must’ and something they are getting elsewhere. So it will become part of their investment decision,” he said.
Population growth was a big driver of infrastructure development and investment.
The population of Africa would double to 2 billion people by 2050, when one in four global workers would be on the continent compared with only one in eight in China, he said.
Of the 2 billion people in Africa in 2050, 60 percent would live in cities, which meant 20 million Africans would move to cities every year.
Housing was high on the list for investment as a consequence of this population growth, Stewart said, because too many people were already living in slums. Investment in education was important to raise the number of qualified people coming through the system.
He believed agriculture and food production would be the next big infrastructure sector, including investments in the logistics chain to efficiently transport food from the fields to the supermarkets and ports.
South Africa’s National Development Plan (NDP) sat right at the top in terms of the quality of infrastructure plans around the world, particularly because of its cross-sectoral approach. But Stewart admitted implementation and delivery of infrastructure projects were challenges in South Africa and in other countries.
There was a discrepancy between the NDP target of investing 10 percent of gross domestic product in infrastructure and the lower percentage allocated to infrastructure in the Budget, he pointed out.
The biggest single lesson learnt from infrastructure development globally, he said, was that project delivery would go well if the preparation, including the design and planning, was done correctly.
Stewart stressed the importance of the right leadership to drive specific projects and an independent monitoring or review process by experts at the critical points, such as before they went out on tender.
“The great advantage of these independent reviews is that they change behaviour because if you are subject to scrutiny, you get your act together before the scrutiny takes place.
“The value of the review is not in the review but what happens before the review even takes place.”
He said KPMG sought to help cities, such as Johannesburg, to make better decisions on their investment priorities. “If you are more realistic about what your priorities are and pursue [fewer] projects, then you have a much better chance of delivering the smaller number of projects.”