Dramatic rise in infrastructure seen

Posted On Tuesday, 07 June 2005 02:00 Published by eProp Commercial Property News
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Finance Minister Trevor Manuel is expecting to see a 'dramatic' rise in infrastructure projects, financed and implemented by public-private partnerships

Infrastructure IndustryFinance Minister Trevor Manuel is expecting to see a "dramatic" rise in infrastructure projects in South Africa, and indeed across the African continent, financed and implemented by public-private partnerships (PPPs), with South Africa able to help other African governments in implementing these partnerships, he told participants at a World Bank conference focusing on infrastructure in sub-Saharan Africa in Cape Town.

At the same time, he revealed that African governments under the auspices of the New Partnership for Africa's Development (Nepad) were considering ways to pool their pension fund monies to invest in an African infrastructure fund.

Over 100 representatives of international development organisations, the private sector, governments and civil society are participating in the two-day conference, aimed at reviewing the lessons learned from PPP infrastructure projects over the past decade and suggesting a way forward.

"To date South Africa has seen R8.0 billion spent on infrastructure PPPs, and I expect that to increase dramatically in the next few years," Manuel told the conference's opening session.

He pointed to such projects as the Gautrain project, hospitals, roads and projects connected with the 2010 World Cup, as well as the planned R39 billion injection by transport parastatal Transnet, and the R25 billion committed for infrastructure by banks as part of the Financial Services Charter, as examples of the rising number of PPP projects set for the medium-term.

"There is tremendous potential in electricity and telecoms, while water and sanitation remain challenges," he noted. "It is also very important that, as a government with developing experience in PPPs, that we liaise with our colleagues on the continent to ensure their public sector capacity is enhanced.

However, he stressed, the South African government did not want to come across as a "big brother" on the continent, either.

"It's an ongoing challenge for us how to use and live up to our responsibilities," he acknowledged.

Manuel said that the experience of the National Treasury with PPPs to date showed that the trick to implementing them successfully was to balance the different interests of the public and private sectors and to understand these interests, while structuring the agreements in a manner suiting both parties. At the same time, the government had to set clear ground rules and standards, while guarding against corruption, and he believed it was critical for African governments to think creatively in mobilising "price effective" capital.

"The problem is that the poorer you are, the higher the interest rates faced," he told the audience. "There is a risk premium paid and it will always be there - the question is how do we deal with it differently, to mitigate the risk premium and therefore lower the costs of borrowing? We need a lot more discussions on this without making any promises."

One option African governments in Nepad had been discussing was the idea of pooling some of their pension fund monies to invest in an African infrastructure fund. However, he stressed, the rules of the fund needed to be very clear, as governments were well aware of the need for good returns.

Michel Wormser, the World Bank's director for infrastructure for Africa and responsible for organising the Conference, echoed Manuel's call for more work on financing instruments for projects across the continent.

"There is a huge need for innovative financial instruments," he agreed. "There must be new arrangements for mitigating risk and brokering deals in PPPs, and international development institutions can play roles in this."

Wormser, however, described a mostly disappointing performance from PPPs in sub-Saharan infrastructure over the past decade. While a World Bank report had showed that investment totalling $20 billion per year was required for infrastructure development across Africa in order to achieve more rapid economic growth over the medium-term, currently only $10-12 billion was going into infrastructure annually.

African governments' contributions to infrastructure had fallen to only 1.6% of their investment spending by the late 1990s from 4.2% in the 1970's, and assistance from rich countries (official development assistance or ODA) to infrastructure projects had dropped by 75% over the same period.

"Still, PPPs have a large role to play, and we can be optimistic," Wormser noted, "but the time has come to take a fresh look at these arrangements."

The World Bank had trebled its infrastructure lending to Africa since 2000, to $2.0 billion annually, and there were plans to accelerate this through working more closely with organisations such as the African Development Bank, the International Finance Corporation (IFC) and others, he revealed.

"A better investment climate in Africa will help accelerate private financing of ports, roads and other much-needed infrastructure projects," he added. "Donor governments will need to increase substantially their contributions to infrastructure, and more public money will attract more private funds. The local and international private sectors should play a more important, active role, and all players must monitor carefully the delivery of commitments.

"This meeting is the beginning of a process to re-shape the PPP approach," he concluded. The solutions must be pragmatic and projects shaped according to the requirements and conditions of each country."


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