State sees the light on private sector’s role in healing economy

• The asset management industry can work with government and fund infrastructure projects

As the custodian of pension fund savings, the asset management industry has the ability to make a significant positive impact in SA. A sorely needed economic recovery can be sparked by allocating capital to infrastructure projects that will benefit current and future generations.

However, the only way we’ll achieve this is to work alongside the public sector to create a conducive policy and regulatory environment so that private sector capital and capacity are unlocked to drive project implementation. For this reason, we are bullish about the draft National Infrastructure Plan 2050 (NIP 2050) from the department of public works & infrastructure, which was published for comment in August.

The plan has ambitious targets and reasonably clear shortand medium-term ideas as to how to reach them. The sectors identified in the plan — energy, freight transport, water and communication — are also those identified as priorities by the private sector, so there is an alignment we must capitalise on.

NIP 2050 seems to indicate a new way of thinking from the public sector, one where the private sector will play a crucial role in rolling out infrastructure investment. It also identifies the need for regulatory changes and amendments to simplify publicprivate partnerships (PPP) in delivering projects.

This approach is our best chance of coming close to reaching the National Development Plan goals of cutting unemployment, reducing inequality and eliminating poverty by 2030.

The plan suggests that SA needs to spend R6.4-trillion on energy, water, transport and communications projects by 2050. It says a third more than R2-trillion of the capital would need to come from the private sector. This will require a healthy relationship between the public and private sectors.

Some of the focus areas outlined include:

Energy infrastructure. The government projects there will be a 30% increase in energy demand by 2050. This means installed capacity will need to more than double, from about 50GW now to more than 100GW by 2050. By 2030, 25GW will be added to the installed capacity. To achieve this, it is important to review and update the current version of the Integrated Resources Plan 2019 (IRP 2019), which sets out the government’s 10-year plan for new electricity procurement.

NIP 2050 further states that emergency power of 4,000MW will need to be procured in 2021/2022, 3,200MW in one bid window in 2021 (already well advanced) and 10,000MW in one bid window in 2022 of the existing Renewable Energy Independent Power Producer Programme (REIPPP). This is a huge amount of power and will require substantial private sector investment.

The economy has been constrained by a lack of a reliable energy supply for more than a decade. If this constraint can be lifted, it could be beneficial for the economy and job creation.

Freight transport infrastructure. It is envisioned that freight transport will play a meaningful role in supporting economic and industrial progress and materially improve transport efficiencies by getting freight off the road and on to rail.

Transnet recently announced that it would embark on 10 strategic private sector participation projects in line with this sentiment. There seems to be real urgency as they plan to initiate three of these projects within this financial year. Efficient and safe transport links are essential for any well-functioning economy. Therefore, attracting private finance in this key network infrastructure sector is essential.

Water. The NIP states that by 2050 there should be universal and reliable access to water of acceptable quality and quantity in support of an, inclusive economy and healthy environment.

With improved reliability of water supply, new agricultural communities and sectors can be developed. We have already seen an example of this: the Orange-Fish River tunnel system, which moved water from the Orange River basin to the Fish River and Sunday’s River valleys in the Eastern Cape, has resulted in the development of the citrus industry in the Eastern Cape and created thousands of jobs in an area where few opportunities existed before.

We need more of these types of projects, and it is encouraging to see that according to NIP 2050, at least two irrigated agricultural projects aimed at food production will be identified and implemented over the next few years. A thriving agricultural sector not only ensures food security but has the potential to create a large number of jobs. Therefore, PPPs in this sector will also play a key role.

Communications. We need to develop the digital economy in SA. Access to fast and affordable internet can provide businesses and individuals with access to information and markets that would otherwise be unreachable. Unfortunately, we are far behind NDP 2030 goals regarding digital connectivity, so we have much work to do. PPPs will again be needed to help make goals such as having universally accessible high-speed broadband a reality.

By allocating capital to a range of infrastructure projects and working with the government, the asset management industry can have a major positive effect on the future of SA.

So, let’s hope that between the NDP 2030, the NIP 2050 and the SA Economic Reconstruction & Recovery Plan, we’ll start to put some of these plans into action and get on with building a thriving SA for this generation and all those that follow.

● Doyer is lead portfolio manager of Sanlam Investments’ Sustainable Infrastructure Fund.