SA needs to step up to attract investments from the New Development Bank
By Dr Duarte da Silva
As impact investing becomes increasingly important for capital allocators globally, it is time South Africa steps out of the shadows to attract foreign investments.
During the 9th Annual Meeting of the New Development Bank (NDB), which took place in Cape Town last week, the Bank approved a R5 billion loan to Transnet in support of the freight rail sector.
This loan adds to the $5.8bn of loans granted to South Africa over the past five years to state-owned entities in support of projects like battery storage, gas emissions, toll roads and water supply programs.
The government is the custodian of the bulk of infrastructure development, but it is not the only investor in this category, many private investors could benefit from this funding.
While the amount is significant, it is still lower than loans granted to China and India. South Africa needs to position itself as an investment destination with bankable infrastructure and sustainable projects.
In my over three decades as a corporate financier and international banker, I believe South Africa lags in attracting investments from the NDB.
There are several reasons for this: the country is not entirely familiar with the inner workings of the Bank - especially leveraging funding and different funding models.
Our projects are not prioritised by a central national authority to be presented to the Bank. South Africa’s data is not coherent enough as demonstrated by the recent Stats SA census debacle highlighted in the press. As a result, viable projects are not adequately presented for funding. In some instances, many worthy projects miss out on funding opportunities from the Bank as there is little knowledge about the Bank.
These challenges should make the government and business leaders seek ways to leverage South Africa’s membership of the NDB.
As a country, we need to take this opportunity to showcase South Africa as a worthy beneficiary for NDB funding. South Africa needs to learn to work with the bank and showcase its projects.
Importantly, the country needs to get the local financial institutions with know-how of global financial models to partner in these undertakings as the NDB mostly co-funds alongside local financiers.
A recent study by the World Bank and Development Bank of SA suggests that South Africa needs to spend between R4.8 to R6.3 trillon between now and 2030 simply to address the Social Development Gap. This includes transport infrastructure and education. This is over 8% of our annual gross domestic product annually over the period.
This is “catch up” investment to further social equality and is a massive undertaking that needs to include funding agencies and public participation.
South Africa is not alone in its infrastructure needs. Africa needs $100bn of annual infrastructure investment for the next 20 years. Funding agencies like the NDB will play a major role in this regard.
Recently, India announced that it had provided the African Development Bank with $500m to further Digital infrastructure on the continent. This is still a major requirement on the continent but received little airtime at the conference.
Alley Roads, which is in the South African affordable housing sector doubled its rental portfolio in the past four years to more than 7 500 affordable apartments and student accommodation.
The Bank does and will fund the private sector initiatives of up to $300m. However, this requires local support from financial institutions, as the NDB does not provide 100% of debt funding.
Corporate South Africa and players like Alley Roads have not tapped into this funding. This could be due to lack of awareness, or they are not familiar with the Bank.
Infrastructure investments are critical to economic growth and alleviating poverty in South Africa.
Massive social impact investment projects undertaken by Alley Roads and others could tap into the NDB funding to accelerate the delivery of these projects.
The NDB is a prospective catalyst for this country and Alley Roads. Understanding how to leverage on South Africa’s membership will be key in addressing the country’s challenges while investing for economic and social good.
Dr Duarte da Silva is an Independent Non-executive Chairman to the Board of Directors of Alley Roads and former director at Merrill Lynch and regional Africa head for Macquarie Group.
BUSINESS REPORT