South Africa’s government is considering selling a green
infrastructure bond worth tens of billions of rand as part of its biggest drive
ever to kickstart private investment in projects ranging from energy to water
reticulation.
The proposed instrument is one of several mechanisms the
country could use to raise finance for projects worth as much as R1.5 trillion over the next decade, said Kgosientsho Ramokgopa, head of the South African presidency’s investment and
infrastructure office.
“A idea that’s finding traction is a green
infrastructure bond,” he said in an interview on Monday. “It will be
substantial.”
The infrastructure program will be officially unveiled at a
symposium in Pretoria on Tuesday, where President Cyril Ramaphosa will announce
investment commitments by private investors and international finance
institutions. It is seen as a way of trying to counter the fallout of the
coronavirus outbreak, which the central bank expects to cause a 7% economic
contraction this year.
Rising debt
With a debt-to-gross domestic product ratio that’s expected
to exceed 100% by 2025, according to a Treasury document, the state has little
room to fund infrastructure despite South Africa’s need for everything from
power plants to additional housing and water supply. State companies also have
limited scope to fill the gap because they too are already saddled with
billions of dollars of debt.
Ramaphosa has previously announced plans for a R100 billion infrastructure fund and is now pushing for more involvement from private
investors, who have more funding capacity. Privately held mutual
funds oversee about R2.5 trillion in assets, according to the Association
for Savings and Investment South Africa, while the Public Investment Corp.,
which mainly manages the pensions of state workers, has R2.1 trillion.
Futuregrowth Asset Management, the country’s biggest
specialist fixed-income money manager, has said the projects could attract
investment if returns are attractive.
The green infrastructure bond could make it easier for
private investors to participate as the security could be bought and sold
easily when they need access to their funds.
The government could use the infrastructure fund to make the
first investment in key projects to reduce risk for private investors,
Ramokgopa said. It may also seek to have private investors fund projects and
then repay them over several years while simultaneously providing them with a
return.
Ramokgopa’s office began engaging private investors in
February and pitched projects to them late last month at an event that had 230
attendees from 60 institutions, he said. Senior representatives from the New
Development Bank, the World Bank and the African Development Bank will attend
Tuesday’s meeting.
As many as 88 of the 272 infrastructure projects in the
pipeline may be bankable, while the rest need additional work and some may not
prove viable, according to Ramokgopa.
“We want to get the economy going,” he said.
–With assistance from Amogelang Mbatha.
