THE INFRASTRUCTURE Fund is expected to focus on key sectors identified by the government, such as water, transport, student accommodation and energy, but priority should be given to projects that improve people’s lives, says RMB’s James Formby.     Supplied
THE INFRASTRUCTURE Fund is expected to focus on key sectors identified by the government, such as water, transport, student accommodation and energy, but priority should be given to projects that improve people’s lives, says RMB’s James Formby. Supplied

Infrastructure spending is now a ‘must do’ for SA

By Philippa Larkin Time of article published May 7, 2020

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Rand Merchant Bank (RMB) chief executive James Formby called for South Africa urgently to start mobilising the Infrastructure Fund to boost the moribund economy, saying the country could “not afford to wait”.

Dondo Mogajane, the director-general of the National Treasury, said in a radio interview that the economy could contract by as much 12percent and unemployment balloon to more than a third of the workforce due to the impact of the coronavirus.

The construction industry was slated to come back only under Level 2, but construction bodies have warned that this will lead to thousands of job losses in an already stressed sector.

Pleas by the Coronavirus Rapid Response Task Team, which called on the government to allow a phased reactivation of the construction sector beginning with an immediate reactivation of sites that were shut down in February, have fallen on deaf ears.

Formby said details of the Infrastructure Fund, which was announced in 2018 as part of the government’s Economic Stimulus and Recovery Plan with a commitment to creating a fund size of R100 billion over 10 years, had been scarce.

In the Budget in February, Finance Minister Tito Mboweni had announced that the Development Bank of Southern Africa (DBSA) would package blended finance infrastructure megaprojects of at least R200bn over the next three years, while the government would commit more than R10bn to the Infrastructure Fund over the three years.

RMB said it understood that the Infrastructure Fund was to be administered by the DBSA and a head had been appointed.

“Infrastructure by its nature stimulates growth and jobs and boosts gross domestic product 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, already so successful in South Africa, have high requirements for manpower.”

He said indications were that the Infrastructure Fund was a long-term initiative, and it would be some time before the fund’s ambitions were announced, but South Africa could not 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.”

Formby said 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 the government to leverage its available debt capacity, which is quite limited,” he added.

He said the banks had dedicated infrastructure financing teams and the expertise to help get the fund off the ground.

In 2008, South Africa’s investment ratio was 23 percent of gross domestic product. Now it is only 18.5 percent, and falling, he pointed out.

“The case to dramatically boost investment is plain,” he said. 

 Additional reporting by Reuters

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