(Bloomberg) -- South Africa plans to establish infrastructure investment trusts and set up a blended-finance vehicle to lure investment to build roads, power-transmission networks and other public-works projects.
The government will also designate infrastructure as a separate asset class to help it attract funding, Finance Minister Enoch Godongwana said in his budget update in Cape Town on Wednesday. President Cyril Ramaphosa’s administration seeks as much as 3.2 trillion rand ($182 billion) from the private sector by 2030 to help upgrade roads, ports and other public works.
The government is betting that the focus on construction will help Africa’s biggest economy reduce its unemployment rate of 33%, which is among the world’s highest. The National Treasury estimates that every 1 million rand spent on infrastructure projects will help add at least three low-skilled jobs and spur economic growth to 1.8% over the next three years.
“Efficient infrastructure investment contributes to economic growth in two ways,” according to the budget statement. “In the short term it boosts demand for workers and materials through construction activities, and over the long term it increases the economy’s capacity to produce.”
The National Treasury has all but ruled out calls by the African National Congress, the biggest party in South Africa’s coalition government, and some state departments to implement a prescribed-assets program that would force pension funds to invest in infrastructure projects.
Private infrastructure investment has slowed, hampered by elevated operating costs in logistics and energy along with corruption, which has undermined trust in the government over the past decade.
Other measures planned by the government include allowing infrastructure loans to be pooled and traded as asset-backed securities. A credit guarantee vehicle to help reduce the risk of public-sector projects is expected to be operational by 2025.
A consultation paper discussing the design of the instruments being considered by the Treasury will be published before the annual budget is announced in February, it said.
The government also plans to extend the scope for borrowing to include infrastructure bonds, bilateral loan financing and concessional funding from international financial institutions, including multilateral development banks.
“Where possible, partners in the Just Energy Transition Investment Plan will be approached for concessional loan projects with demonstrable climate change co-benefits,” the Treasury said.
A request for proposals will be issued before the end of next month with details for selected projects and programs that can be financed by interested lenders, it said.
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