JOHANNESBURG - For the South African economy to pull itself out of the current chronic economic quagmire, the government and finance sectors must pull together.
The South African industry is capable of generating the required surplus demand to make the African Continental Free Trade Agreement realistic to all African economies.
This process must be championed by South African society, therefore South Africa needs to initiate mega projects for South Africans and the continent.
Crucial to mega projects is an ability to lure investment, as a result an achromatic collaboration between industry and the government is required to placate the fears of investors for any sovereign-driven project.
It is proverbial that the lack of investment in mega projects that can deliver industrialisation is attributed to the lack of “bankable” projects; the difficulty in managing political and macroeconomic risk; and a mismatch between instruments being offered and the needs of institutional investors.
The South African economic situation causes us to question the normative economic practice, and it agitates all of us to think differently in terms of “terra incognita (unknown territory)”. The recently announced Infrastructure Fund is potentially the vehicle to stabilise the economy.
This will propel vanilla-lending and stepping up technical assistance, while seeking to mobilise private finance through innovative policies, advance project-preparation facilities, the co- financing of funds and de-risking for private investors.
The Infrastructure Fund by its character must mobilise additional expertise from finance, industry and the government, supported by centres of excellence to bring about economic stabilisation.
The South African pension system is uniquely placed in Africa to contribute to infrastructure investment, and where necessary Pension and Insurance Reform acts must be reviewed to extend their mandates to infrastructure investments through the Infrastructure Fund. This will enable the creation of the needed jobs.
It will necessitate a sound policy framework for investment in infrastructure, supervised by a Reformed Pension and Insurance Act, to adequately devise instruments to channel both pension funds and insurance resources to the required infrastructure projects.
The announced infrastructure fund, complemented by infrastructure bonds, should be structured as “a development-orientated yet commercially-operated efficiency”.
On the supply-side a clearer project pipeline should provide appropriate investment opportunities at home in greenfield and brownfield projects.
Bonds would be backed by the fund and the cash flows from several prepared infrastructure projects, thus bonds and infrastructure funds render infrastructure investments tradeable and, therefore, help to increase their liquidity.
To establish such practices and institutions will be a herculean task, however, we have limited options to help realise enormous efficiency gains and enables governments to successfully undertake a larger number of projects.
If projects are structured properly, the efficiency gains from private- sector involvement can easily outweigh intermediary funding costs with an enhancement of local standards to capture the value-chain gains.
This will facilitate the movement of local firms up the value chain and build up the knowledge corpus domestically, with domestic resources.
This will prove that President Cyril Ramaphosa is not just dreaming. South Africa can earn an impressive reputation as an “Africa’s Factory” within the decade, where speed rail trains from Cape to Cairo are built.
As a country develops, its economy typically moves up the value chain, leading to increased intra- African trade, which currently hovers at around 12percent of total trade, and participation in regional and global value chains.
As an economy moves up the global value chain, adapting its infrastructure can also help attract foreign investment and contribute to the knowledge transfer, leading to more trade with the rest of the world.
This potentially gives the continent enhanced growth opportunities in intra-regional trade, global value-chain participation and more importantly, technology convergence.
Bongani Mankewu is an associate of the infrastructure development and engagement unit at Nelson Mandela University.