I was reading some commentary on the South African manufacturing sector today, and came across something that said, roughly, that any positive impact the weak rand might have had on South African manufacturing is being offset by the drag on manufacturing created by the electricity shortage and other infrastructure bottlenecks. This really struck me – South Africa is being actively constrained from developing its manufacturing capacity by the many shortcomings of her infrastructure, which is especially depressing given the favourable environment being created by the weak rand.
It’s heartening, then, to learn a little more about the R1.5bn infrastructure financing facility that the European Union cooked up last year with its South African interlocutors. While it isn’t going to solve all our problems, this facility should help smaller projects that are delayed or struggling to get off the ground, and perhaps help speed up some existing projects, so that South African ingenuity and entrepreneurship are no longer being choked by insufficiencies in road, rail, port, and power. – FD
To watch this video on CNBC’s Power Lunch click here
ALEC HOGG: The European Union and Representative to South Africa, Mr Roeland van de Geer and the Development Bank of Southern Africa’s CEO, Mr Patrick Dlamini have launched a one-and-a-half billion Rand (not Euro) ground-breaking infrastructure investment program for South Africa. I mentioned the Euro a little earlier. I’m sorry. I got a bit excited. It’s going to provide grant funding. For more on this story, we are joined now by Mohale Rakgate. He is the General Manager for Project Preparation at DBSA. It’s all to do with infrastructure Mohale, if I read your release correctly.
MOHALE RAKGATE: You’re quite right, Alec. The focus is on infrastructure. Maybe just to give context, this is a program that was conceptualised by the European Union and the South African government as part of their relationship and partnerships. Our involvement, as DBSA, is insofar as we are the Implementing and Fund Manager for the program. It focuses on supporting infrastructure projects in energy, water, transport, ICT, and social infrastructure sectors
ALEC HOGG: Would you take a share of an infrastructure project then, with this one-and-a-half billion Rand?
MOHALE RAKGATE: Yes, the idea is to support projects through this grant funding, those projects which, without the grant funding, wouldn’t reach stages of development either from the feasibility study stage – which we call preparation – or subsequently, after preparation studies have been done. Projects are not bankable because maybe they need a little bit of capital grant or interest subsidy, in order to have them implemented. That’s the idea.
ALEC HOGG: So they wouldn’t fly without your support.
MOHALE RAKGATE: Yes, we need to have a role in the sense that we don’t support projects that could have gone ahead without this. Another critical element of this is the idea that DBSA as a funder and the European DFI’s would need to co-fund the ultimate project, which arises out of this support from the grant.
ALEC HOGG: I’m sorry – the DFI’s?
MOHALE RAKGATE: Development Financing Institutions.
ALEC HOGG: Have you noticed? These guys like to use their shortened words. I suppose you say that so often, don’t you.
GUGULETHU MFUPHI: They’re used to the technical terminology. Coming back to the projects that you identify, are these new or already existing projects?
MOHALE RAKGATE: It’s mainly new projects, or projects that are already in development, but cannot be implemented.
GUGULETHU MFUPHI: Would Medupi be one of them?
MOHALE RAKGATE: Probably not. Looking at the size of the facility, it’s one-point-six billion Rands and Medupi is a one-hundred-and-ten billion project, so maybe the scope for this fund would be limited in a way.
ALEC HOGG: What kinds of projects are going to be able to come to the market, and get developed as a result of this one-and-a-half billion?
MOHALE RAKGATE: We don’t want to be presumptuous. We know that we want to support projects in the transport sector.
ALEC HOGG: So, not e-tolls, or another e-toll. It would be a ‘free-toll’?
MOHALE RAKGATE: We are guided mainly by the National Development Plan in South Africa. There are sets of projects, which are prioritised in that plan, as well as in the SADC region by the master plan of SADC. It would therefore be projects emanating from those priority lists as determined by the respective governments or regional bodies. Ours is to go to market in an open process and invite potential applicants. We have robust criteria. We then look at whether these projects would fit with our criteria. That process will happen in April, where we go out to market to invite potential applicants.
GUGULETHU MFUPHI: Another interesting aspect is that you’re looking for greater development regarding the SADC region, and not just focusing on South Africa. Is that part of the agreement?
MOHALE RAKGATE: Yes, the program is called Infrastructure Investment Program for South Africa. The objective is to support both South African projects, as well as those projects that foster regional integration within the SADC region, so it’s not only South African projects. It’s also SADC projects that promote linkages within the region.
ALEC HOGG: Earlier this week, we had Earl Gast from USAID in the studio and he was giving us some quite exciting updates on the Inga Falls project. I know this is much smaller than what needs to be put in there. Is the DBSA getting more involved in that, given the potential that Inga Falls has to transform our electricity equation?
MOHALE RAKGATE: Yes, the DRC by the way, is part of SADC, so in terms of their mandate, the Inga Project would clearly be in line with the ethos of this program. Should there be an application, we would look at it, based on its own merits.
ALEC HOGG: How far are you on Inga Falls from your side – from the DBSA’s side?
MOHALE RAKGATE: We are still in the conceptual stages. We’re discussing with the partners – DEO and the National Treasury. If you remember, there was a signed agreement between the South African government and the DRC government late last year. Emanating from that, we’re looking at it from the conceptual stages, but that projector would factor highly within IIPSA’s criteria. It is a big project.
ALEC HOGG: We know it’s a massive project and we know its potential, but we also know it’s been dragging on. What’s stopping it? How can someone like you, go there and break the logjam?
MOHALE RAKGATE: One is not too close to the intricacies of the project, but from general knowledge, which everyone comes across, there are issues around… If you remember, historically, the stability of the country…those things disturb, or has a negative impact on the evolution of projects. Fortunately, DRC is relatively peaceful now. In terms of regional integration, that’s the theme, which SADC is driving hard. South Africa, as I understand, is willing to be an off-taker of part of the power, which will enable the project to be implemented. I think that variables are in place to make it work better now than before.
ALEC HOGG: Gugu, I would say we’re a grabber of the power, and not a wiling off-taker or taking a part of it, given the shortages we’re having now?
GUGULETHU MFUPHI: That’s true. Coming back to the private sector however, have you identified any corporates that could play a role?
MOHALE RAKGATE: Well, we know the radar screen, people who we can potentially work with but as I said, we don’t want to be presumptuous and say we want to work with A and B, and not D and C. In that sense, that’s why we’re going out to the market, to get the market to respond to our request for applications. We are aware of all the projects that are on the radar screen from the National Development Plan here in South Africa, and on the SADC space, we are aware of the SADC master plan, so we are targeting some of those projects. There may very well be other projects outside those lists, which we’d look at as well.
GUGULETHU MFUPHI: It’s interesting, Alec. The last time I spoke to the Chief Executive of Wilson Bayley Homes, he said usually, government has too little funding available so hopefully, this is a project, which they’ll also join.
MOHALE RAKGATE: Exactly. The great theme around it is that it’s one hundred million Euros, and we hope that it can be leveraged to deliver infrastructure into billions. We want to plug a gap, which, if done, will enable serious infrastructure to be unlocked. It’s small, but can potentially have a big impact.
