Remarks by President Cyril Ramaphosa at Meeting in Preparation for Sustainable Infrastructure Development Symposium
Tuynhuys, Cape Town | 18 February 2020
Our country is confronted with major challenges that threaten to derail the hard earned gains of our democracy.
Despite our efforts, deepening unemployment, slow economic growth and various social ills undermine our national aspirations.
Extraordinary measures are required to respond to these challenges and return us to a path of growth.
It is against this backdrop that I have convened this extraordinary meeting.
This meeting is extraordinary in that it brings together, for the first time, government, financiers – including multilateral development banks and development finance institutions – organised business and infrastructure-oriented industry players under one roof to discuss public sector infrastructure in a meaningful way.
I have previously described infrastructural investment as a critical driver of future growth in an economy that has been stuck in a low-growth trajectory for the past ten years.
Infrastructure plays a significant role in a country’s economic welfare.
The provision of superior quality infrastructure allows an economy to be more efficient, it has the effect of improving productivity, and raising long-term growth and living standards.
However, it does not follow that more infrastructure in-and-of itself will translate into higher long-term growth.
It is having the right kind of infrastructure investment that will increase an economy’s productive potential.
The Economist publication calls infrastructure the “economic arteries and veins; roads, ports, railways, airports, power lines, pipes and wires that enable people, goods, commodities, water, energy and information to move about efficiently.”
South Africa’s infrastructure reality
Our blueprint for development, the National Development Plan commits to certain key targets to be met by 2030, including:
- 5% year-on-year economic growth,
- 6% unemployment rate,
- 30% gross fixed capital formation to GDP.
However, economic growth projection is expected to remain below 1% this year and unemployment continues to be on the rise, now at a staggering 29%, with youth unemployment being even higher.
Gross fixed capital formation remains tepid, at 18% of GDP.
Public infrastructure spending has been declining in recent years.
Currently, it only amounts to about 13% of total spending.
The 2019 Budget Report states that the public investments have been declining recently and transfers to local governments for investment projects are underutilised.
The fiscal space has been further constrained by the vast contributions provided to rescue SOEs such as Eskom and SAA.
Overall infrastructure investment needs to grow to 30% by 2030 to achieve the NDP growth targets.
Multilateral development banks, development finance institutions and the private sector all have a critical role in financing and implementation of this investment.
In recent years, government has witnessed the accelerated deterioration of some of its most important assets required to improve the quality of life of the people.
The rapid deterioration of municipal water infrastructure such as waste water treatment works and water treatment plants undermines the economy and threatens access to basic services.
The disintegration of provincial and municipal roads will affect the efficiency of the road network, stunt economic growth and increase the cost of transport for all road-users.
The story of failing power plants is well documented, causing great harm to the economy and raising the country’s risk profile.
The haemorrhaging of technical engineering and financial skills in the public sector has contributed significantly to the bleak state of public infrastructure.
Decimation of these necessary skills in the public sector has undermined planning, prudent asset management, and the production of a credible and transparent project pipeline.
The net effect has been the collapse of industry, divestment from the country and erosion of funder confidence.
This is a picture we want to correct and correct immediately.
Addressing barriers to infrastructure investment is critical to achieve the required growth.
The most immediate interventions required to correct the situation include:
Firstly, the creation of technical and financial engineering capacity.
It is unlikely government will recreate the lost skills to the required levels in the immediate term.
It is therefore important to create a legally permissible transitional dispensation to ramp-up state capacity in the technical and financial areas.
The envisaged dispensation should be premised on private sector collaboration.
The dispensation should seek to steadily recreate the necessary skills in the public sector and target motivated young professionals to see the public sector as an employer of choice.
Secondly, we need to develop a detailed Infrastructure Investment Plan.
The Plan should provide a positive signal to investors and lenders, revive the stagnant construction industry, and improve skills and institutional capacity across line ministries and sub-sovereign entities to generate a visible pipeline of projects.
It should outline a public-private partnership framework and remove policy bottlenecks in engaging with private sector.
It should strengthen preparation of bankable projects, mobilise long-term finance and implement projects through comprehensive contract management towards achieving a sustainable infrastructure delivery and service.
Thirdly, we need to initiate policy and regulatory reforms.
Our public sector policy and regulatory universe is among some of the most elaborate and prohibitive in the world.
It has the unintended consequences of delaying and derailing investments at great cost to the economy.
There is a need for a speedy, robust and transparent decision-making process.
The public-private partnership legal environment requires revision, and innovative ideas should be accommodated in the procurement space.
Fourthly, we need to rethinking the public sector financing space.
In September 2018, I announced the creation of an Infrastructure Fund as a way of crowding-in private sector participation in the roll-out of public infrastructure.
The Infrastructure Fund has two main aims.
The first is to improve the quality and rate of infrastructure investment by strengthening project preparation and governance so that there is a visible pipeline of projects.
The second is to close the viability gap and provide blended finance for projects that have social and economic elements and/or to address market failures.
This will ensure that Government strategically uses the limited fiscal resources to mobilise financing from the private sector, development finance institutions and multilateral development banks.
The envisaged Infrastructure Fund will have four core elements:
- Pipeline and project preparation, to address fragmentation in the preparation of feasibility studies, viability assessments, project structuring and procurement.
- Budget Facility for Infrastructure, which assesses whether large infrastructure projects are ready to be considered for funding.
- Strategic Intervention Unit, which will facilitate the financial structuring, procurement and implementation of priority blended-finance projects and programmes.
- Project Account, a disbursement vehicle for ring-fenced funding for projects.
Fifthly, we need to revise the public sector infrastructure institutional framework.
Functional fragmentation, institutional overlap and unclear processes, incentives and controls impede the optimal roll-out of infrastructure.
A review of distribution of functions and roles across different institutions and optimising processes and controls to ensure optimal infrastructure investment is critical.
This will include mainstreaming the Infrastructure Fund concept into the institutional and decision-making process.
The recently-established Investment and Infrastructure Office in the Presidency will spearhead the revision exercise with a view to ensuring better coordination and alignment and positioning the Presidency as the strategic centre for investment and infrastructure in the country.
I will be releasing an Infrastructure Investment Policy Statement, which, among other things, will provide an ‘eco-system’ within which good infrastructure investments (including PPPs) are undertaken, remove ‘institutional confusion’, and create an oversight mechanism.
This policy will help build consensus, and provide clarity to all stakeholders on how infrastructure projects should be conceived, how Government support mechanisms should be structured, and how the infrastructure project life cycle should be streamlined.
It will also provide guidance on how to mainstream Fiscal Commitment and Contingent Liability analysis and functions throughout the PPP project life cycle that ensures affordability of a project on its own and on a portfolio basis.
The scale and gravity of the challenge facing the country calls for a collective South African response.
The state will have to galvanise all of society behind an orchestrated, comprehensive and bold effort to turn around the economic fortunes of the country.
An aggressive public sector build programme presents a plausible, immediate and universally tested intervention to achieve the desired economic turnaround.
I have therefore instructed the Investment and Infrastructure Office in the Presidency to convene a ‘Sustainable Infrastructure Development Symposium’.
This will aim to produce, in the immediate, a suite of projects that are of national significance and enhance quality, sustainability and capacity.
They should be projects that have the potential to drive economic growth, attract significant private sector investment and help in meeting the government’s strategic objectives.
As I indicated, the state’s technical capacity is extremely limited to meet the desired outcomes of the Symposium.
I, therefore, want to make the following appeal: that you endorse the Sustainable Infrastructure Development Symposium, offer technical support to Investment and Infrastructure Office in the project screening and preparation leading to the symposium, consider funding projects presented at the symposium, and actively participate in updating the country’s Infrastructure Plan.
My administration is committed to forging social compacts in the resolution of the challenges facing our beautiful country.
I am encouraged by the support and goodwill from the broad spectrum of society directed at government.
I am confident that working together we will prevail.
I look forward to your support.
I thank you.