Local govt needs private sector to ramp up infrastructure development, say experts

Local government is at the coalface of service delivery, but has faced myriad challenges, including corruption, adverse findings from the office of Auditor General and downgrades from international sovereign credit rating agencies.

Experts met on Thursday to discuss the findings of the first phase of the Infrastructure Investment Programme for SA.
The programme identified a need for the private sector to assist with improving access to blended funding.
It also found benefits for local government in including a broader range of funding instruments.

As South Africa battles to kick off its economic recovery, the private sector could be the critical missing piece needed to help local government access funds for social and economic infrastructure to kick off development.

This is according to experts who spoke at a virtual panel talk on Thursday, which gave an update on the first round of the Infrastructure Investment Programme for South Africa (IIPSA). The event was organised by National Treasury and the Development Bank of Southern Africa.

The programme seeks to assist the South African government with implementing its medium-term strategic framework and the National Development Plan.

The IIPSA funding exists to enhance sustainable economic growth and deliver key services in South Africa and in the Southern African Development Community Region.

Head of local government support at the Development Bank of Southern Africa (DBSA) Chucheka Mhlongo said the local government system needed “transitional” instruments to pave the way forward for access to financial markets and credit.

“The public sector alone cannot meet the financial need to facilitate growth and development. A wider pool of finance must be accessed. Research has shown that the problem is not a lack of finance but a lack of investable projects,” said Mhlongo.

Chief director of National Treasury’s Intergovernmental Division Pule Setai said Treasury was looking at getting projects done through development management systems at provincial level.

“A long term financial process is valuable to municipalities who wanted to institutionalise it. it has to be implemented in a standardised manner. Institutionalising the financial plan would have to be standardised,” said Setai.

Setai said in the pilot phase, the programme institutionalised a benchmarking process, which it uses to investigate how municipalities are planning for infrastructure and expose this work to the broader private sector.

“Reforms prompted us to look at how plans inform budgets. In the benchmarking process it is clear that in the metros piloting the financial plans are making things better for participation of divisions in the municipality and sector departments,” said Setai.

IIPSA technical advisor Alwyn Coetzee the programme highlighted the need for project preparation, grant funding, capital grants, interest rate subsidies and guarantees in the local government sphere’s infrastructure development plans.

“In identifying projects that could benefit from this was not easy. We spent a great deal of time advertising, because we wanted to do projects that would not usually be possible and blend finance sources to get funding and use resources from the municipal side,” said Coetzee.

Coetzee said the municipalities selected for this exercise were paired with National Treasury and identified projects and develop details an incorporate them into the financial development plans.

“An important ingredient when funding development of infrastructure is the selection of the projects. The key outcome of the plans we have prepared within the financial framework was projects that were ready, could be implemented and can be presented from various financial sources and require some funding instrument from IIPSA,” Coetzee said.

He said projects that had not been found to be fully bankable would be further assessed in a process that will take two to three years to get them to bankability.

Managing director of the Palmer Development Group, Kim Walsh, said careful selection of infrastructure projects was fundamental to understanding the state of municipal viability.

“Decisions being made now around housing delivery can have a long term impact on municipal viability. Municipalities are feeling increasing pressure to invest in infrastructure that will generate revenue in the long term,” said Walsh.

“Long-term financial plans should demonstrate the impact on state of infrastructure maintenance needs and the financial position of municipalities. There is ample evidence that asset conditions are declining over time and needing continuous renewal and maintenance,” she added.

Senior economist at Nedbank, Isaac Matshego, said South Africa remained a leader when it comes to infrastructure development and needed to “ramp up” cooperation between the private sector and the public sector to improve access to finance.

“In terms of quality, you have to divide between the private and public sector. The private sector is doing well. When it comes to the quality of the finance sector in South Africa, we rank top ten in the world. But we are not doing quite as well when it comes to the development of infrastructure,” said Matshego.

Chief financial officer of Drakenstein Local Municipality, Cindy Lategan, said the programme allowed the council to go to the market with DBSA and use interest subsidies to invest R1 million on the ground to stimulate growth in the council.

“We had included in our financial plan strategies that we implemented and looked at cost containment and revenue enhancement. This is about adjusting the financial plan to the situation where you are,” said Lategan.

IIPSA is expected to support the implementation of the government’s infrastructure programme and address constraints in infrastructure development in the country and the region.

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