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Hello and welcome to this So What podcast, which I'm very happy to announce just won

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gold in the politics and opinion category of the inaugural South African podcast awards

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which happened in October of 2024.

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In these conversations, political economic analyst JP Landman discusses the issues uppermost

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in the minds of South Africans.

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You can find a written version of this content on JP's website jplandman.co.za.

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I am Ruda Landman and I am your host.

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This discussion accompanies the newsletter dated 21 November 2024 with the title, Investment

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Pulling It All Together.

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It's information laden, so I would recommend that you look at the written version as well

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to digest the numbers.

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The website again, it's jplantman.co.za.

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JP, so investment in South Africa, the overall picture?

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The overall picture is that in 2023 we invested just over a trillion rand, that is the public

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sector and the private sector combined, and one must see that one trillion rand investment

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in the context of an economy which is about seven trillion rand big.

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So one looks at an investment to GDP ratio of 15%, that is the standard measurement worldwide.

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And how does that compare internationally?

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It probably compares with a range of countries, but if we compare it to what we would like

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to do in South Africa, then we certainly need more.

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The now defunct National Development Plan used to talk about the 25% ratio, 10% by the

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public sector and 15% by the private sector.

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Now at 15% we are not close to that number.

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And that number is relevant Ruda, because several ministers in the government of national

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unity, DA ministers as well as ANC ministers, have spoken about converting or transforming

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South Africa into one big construction site.

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So what we want to do in this note is to see how that is going.

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And 15% is not enough to get us to one big construction site.

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That number of 15 will have to increase.

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You say two sectors, public and private.

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What's the ratio between those two?

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Additionally, the public sector contributed about a third of investment in the country

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and the private sector two thirds.

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In the last couple of years that ratio has changed.

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The public sector ratio went down.

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In 2023 it came to about 28% and private sector investment came to 72%.

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So there's been a tilt away from two thirds, one third to about 72, 28.

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And you think, you believe that the private sector investment is really important.

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What do you base that on?

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I base it on a new report that was published by Professor Philippe Berger, who is the Dean

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of Economics at Freestead University and a very, very competent macroeconomist.

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And he did a lot of research recently for UNWINDER, which was published not long ago.

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And he found that for every 1% increase in the ratio of private sector investment to

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GDP for every 1%, economic growth increases by 0.67% per annum.

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Now that's an enormous dividend to spend 1% more and you get 0.67% more in economic growth.

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That's really an enormous dividend.

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In contrast, he found that public sector spending, particularly by SOEs, is almost statistically

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insignificant.

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In other words, you can increase public sector to investment to GDP ratio, but you won't

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get a statistically significant dividend in terms of growth.

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Now this sounds very bleak and so on, but it ties up with common sense.

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If you think ESCOM building Madhupi or building Kusili, how long that took, what the overspending

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was, how much money in the end it cost, and what is the return that you get.

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You compare that with a private company building a solar farm, for example, what it cost, the

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speed of finishing the project and what you get back.

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Then it makes perfect sense.

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We know that the private sector in general is more disciplined and more efficient in execution

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than the public sector.

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Not always, but in general.

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So in that sense, Philippe Berger's numbers are not a surprise.

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With that said, let's start with public sector investment.

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We are all aware of budget austerity in these times.

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What does that mean for investment from the public sector?

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Well, the interesting thing here is the truism is that if you have budget austerity or your

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budgets are cut, the first item to be cut is capital expenditure.

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The interesting thing is that is not happening at the moment.

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The 2024 budget is giving us a three-year projection of capital expenditure, public sector

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infrastructure spending, and over the three years it comes to 943 billion rand.

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That is about 29% higher than the three-year cycle that we've just got behind us.

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So if you compare three years with three years, what you see is the 29% increase.

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That's a huge increase.

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It beats inflation by a comfortable number, and it tells you what the political priorities

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are.

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So that old truism that when there's austerity, you cut capital expenditure, is certainly

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not holding.

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And I think that's a very encouraging sign.

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And if you say public sector, what does that mean really?

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Who gets to spend this money?

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Yeah, indeed.

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It's a massive sector.

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First of all, it's around about 36 national departments.

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Between them they have about 116 agencies.

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Think for example, Sunroll that builds roads.

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That is one agency.

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Think the Independent Electoral Commission, when they need to install new computer equipment

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or whatever.

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That's an agency of government, an agency of a national department, and they will spend

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money.

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Then the second category is you've got the nine provinces.

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The third category is you've got about 257, 258 local authorities.

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They spend money.

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And then lastly, you've got PPPs, where a government agency is doing a particular project,

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but they're doing it in partnership with a private company.

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So it's really everything that you can think of in the bigger public sector of South Africa.

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Where do SOEs fit in?

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SOEs are also part of that.

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In fact, SOEs are the biggest single player.

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They spend about 40% of the 943 billion.

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Then they followed by municipalities with about 23%.

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Then provinces in the third place with 20%.

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Then only the government departments and their agencies at 16% and then PPPs with about 2%.

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So the biggest player is the SOEs.

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You say that, of course, these numbers tell us nothing about quality of spending with

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corruption, poor planning, et cetera.

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And we'll get to that in a moment.

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But I first want to focus on the public-private partnerships.

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Only 2% of this investment.

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So do they really matter?

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Yes, they do matter because they give you a much better quality outcome.

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As we put it in the note, they punch above their weight when it comes to quality.

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And again, we know that intuitively you can just compare driving on a toll road to driving

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on a provincial road and you see the difference.

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Toll roads are normally PPPs and they're much better maintained, much better condition than

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what provincial roads are.

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So there is definitely a qualitative difference.

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PPPs have not taken off in South Africa over the last decade or two, except for national

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roads.

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In national roads, we've been quite successful in building a large number of PPP projects,

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but not wider than that.

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It looks if that is changing now.

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Why?

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Because there are a couple of interesting PPPs going on.

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There's one going on to revamp and rebuild one military hospital in Twane.

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It's a big project.

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There are also proposals out to the moment from the Western Cape government to redo the

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Tigerburg Hospital down in the Western Cape, also on a PPP basis.

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And then the third example are six border posts between South Africa and its neighbors

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here in the subcontinent, which are being revamped and rebuilt with private sector money.

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So those are examples of PPPs.

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So it looks as if there's a bigger movement in that direction.

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A very interesting little PPP, it's a small one, it's only about 120 million rand, was

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conducted between the Mpumalanga Tourism and Parks Agency and the British Aspenal Foundation,

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which is a charity foundation, to redevelop the Los Cobdam Nature Reserve.

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Now, as I say, it's a small amount, it's only about 120 million, but it will run over

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25 years and the infrastructure will be upgraded like roads, fences, staff accommodation and

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field ranger facilities.

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A particular emphasis of this PPP is that they would like to include public and private

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land inside an enlarged Los Cobdam Nature Reserve.

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Their ambition is to make it bigger than the Palansberg Reserve.

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So it's a unique form of a PPP.

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So one thing that will lift the quality of investment spending is working with the private

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sector in the shape of PPPs.

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What else has government done?

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What other kind of guardrails have they put in place?

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Another one which was put in place quite a while ago in 2016 already is the BFI, the

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Budget Facility for Infrastructure.

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And what it basically is, is public sector institutions that we spoke about earlier can

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apply, they can tender to have projects that they want to do, to have those projects financed

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through the budget.

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But then they've got to meet certain criteria for preparation, for technical specifications

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and also for execution.

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Where does this live?

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In Treasury?

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It lives in Treasury, absolutely.

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Now in the eight years since 2016, we've now had this year the seventh bit window.

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One was missed in 2020 with COVID, I think.

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And what happened in October this year, last month, the Minister of Finance announced that

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instead of having one bit window a year, once only, we will now have bit windows on a continuous

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basis.

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So that should ensure a bigger supply of projects that can be evaluated and if approved, will

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give you a bigger pipeline.

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So the Budget Facility for Infrastructure, the BFI, do two things.

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First of all, they've got, as I've said, stringent technical requirements for the project.

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You cannot just jump in and say, I want money for a school or I want money for a hospital.

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You've got to show that you're capable of planning the project properly, budgeting it

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and so on.

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But the second thing it does is to mobilize private sector money to finance that project.

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Now if you look at the numbers for 2024, what you see is that 66.9 billion Rands worth of

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projects have been approved and 52% of that money comes from the private sector.

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38% comes from the budget, from the state, from the taxpayer and another 10% from third

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parties.

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So there's a distinct tilt to involving private sector funds and thereby enlarging the pool

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of money that's available.

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So this 66.9 billion Rand will be spent on 14 projects and if I just give you an idea

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of what they are, it's social housing projects, about 14,000 housing units, five water and

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sanitation projects all over the country, six revamped border posts that I've already

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referred to and student housing projects on four university campuses involving some 10,000

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units.

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So you're talking fairly substantial projects.

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So are these also PPPs?

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Do they overlap?

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Yes, there is an overlap.

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It can very well be an overlap.

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You may find that what starts off as a BFI project could end up being a PPP, but they're

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not necessarily the same.

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The governance arrangements normally differ.

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So you may find that a particular public sector still runs the project, although they have

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to do it with their private partners.

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But yes, there can be an overlap.

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Where do the infrastructure fund and infrastructure South Africa fit in?

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The infrastructure fund is a new innovation that came in 2018 when President Ramaphosa

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became president.

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It was his baby.

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He was an officer about three months when he said that he wanted to establish an infrastructure

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fund.

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The intention was to blend public and private money, take some money from the taxpayers,

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take some money from the private market.

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You blend it.

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That brings the cost of finance down, but at the same time it enlarges the pool of finance.

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He was particularly keen on it in 2018.

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It took two years to operationalize it.

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It just took time in the public sector and it became operational in 2020.

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Currently there are 31 projects under preparation by the infrastructure fund and infrastructure

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SA, and it includes schools in the Northern and Eastern Cape, as well as hospitals in

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Malanga and the Free State.

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Now let me just say that's the infrastructure fund.

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Where does infrastructure SA fit in?

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After a year or two it became clear that the biggest stumbling block in government infrastructure

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spending is the quality of preparation and the quality of oversight of the project.

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The skills simply does not, certainly did not exist in the public sector.

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So infrastructure SA was created as an agency to help that.

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They've got a team of professional people.

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In the budget this year 600 million rand was allocated for technical skills inside infrastructure

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SA and they can then help to plan projects, to inspect them properly, to get them running

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and to look after the implementation of those projects.

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So the fund is about money.

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Infrastructure South Africa is about skills and the two work together.

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Will it please also help water and sanitation?

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Yes, I think indeed it will, included in the numbers that we talked about, the 943 billion

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and included in the BFI are public projects on water.

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But let's just dig a little bit deeper into it because it is such a big deal.

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Overall there are 11 projects countrywide across seven provinces which total about almost

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140 billion rand for water.

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And I'll give you just the big ones.

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The biggest single project is 42 billion rand for the Lesotho Highlands phase two to deliver

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water to Gauteng, Gauteng and North West.

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The completion date for that is 2028.

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This project has been considerably delayed.

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There were allegations of corruption and so on, but it looks as if it's now firmly on

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track.

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A second set of projects coming to about 46 billion rand is free projects in KwaZulu-Natal

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for bulk water supply in that province.

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It will help the South Coast in particular.

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Water is a problem in the South Coast and these free projects should help with that.

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The completion date there is between 2027 to 2032.

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And a third one, which is also an interesting project because this moves towards PPP, is

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the Wollifant River project Mpumalanga, which is a joint effort between the mining company

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Glencor, the platinum mining company Amplats and government.

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And it will involve 400 kilometers of pipelines and provide 250 million liters of water per

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day.

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It's equal to about one third of the total consumption of Cape Town.

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Now you can see that it's a joint effort between two mining companies and government.

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And they're busy negotiating at the moment with 10 local and international banks to finance

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that.

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They're putting that movement of private capital into a public project.

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Their completion date is expected to be 2030.

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So there's a strong movement around water to improve bulk water supply.

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I think the country can take comfort from that.

249
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But it still has to come from the big pipe to the little pipe in my bathroom.

250
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What happens with the final mile or the last mile?

251
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How do they put it?

252
00:18:03,280 --> 00:18:04,280
You're quite right.

253
00:18:04,280 --> 00:18:09,520
The water has slipped between the reservoir and the tap.

254
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The bulk water supply we've spoken about, the problem is municipalities and distribution

255
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systems.

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And we know that that is in quite a bad shape.

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So what has happened is that the government has put up a water office in the development

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bank.

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It is modeled on the IPP office, the Independent Power Producers Office, that did quite good

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work around renewable energy, basically copying that copy and paste.

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00:18:37,800 --> 00:18:43,040
And the idea with the water office is that they must help municipalities, which as we've

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seen earlier is quite a big spender.

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They've got to help municipalities to fix their water affairs.

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Now the head of the water office is Mr. Johan Libbe.

265
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And he had a very interesting interview.

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He said the water office has begun to mobilize private sector financing for water projects

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in Etiquini, Mangahung, Buffalo City, Nelson Mandela Bay and Twane for the replacement

268
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of leaking municipal water systems, which are resulting in high levels of non-revenue

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water.

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We're all aware of the problem of non-revenue water and for that you've got to fix leaks.

271
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To fix the leaks you need money.

272
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So that's where the water office comes in.

273
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But Johan Libbe warns, he says it takes time.

274
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It is not something that happens overnight.

275
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On the larger projects it takes 12 to 18 months to properly structure the projects.

276
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You don't want to rush through a project and then put it out to the market and then the

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00:19:40,880 --> 00:19:43,360
private sector shoots a full of holes.

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So it takes time, but the institutional infrastructure is there.

279
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The people are there.

280
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It should lead to an improvement over time, particularly in the big metros.

281
00:19:54,200 --> 00:19:56,800
What difference will it make to involve the private sector?

282
00:19:56,800 --> 00:19:59,800
Well, the private sector by definition brings discipline.

283
00:19:59,800 --> 00:20:02,680
There's money that is advanced.

284
00:20:02,680 --> 00:20:04,040
That money must first of all...

285
00:20:04,040 --> 00:20:06,560
And it's their money, it's not tax money.

286
00:20:06,560 --> 00:20:10,620
It's not amorphous tax money.

287
00:20:10,620 --> 00:20:14,240
That money must earn a return and it must be repaid.

288
00:20:14,240 --> 00:20:19,640
So you immediately have financial discipline, which we clearly don't have in a lot of our

289
00:20:19,640 --> 00:20:22,060
municipalities.

290
00:20:22,060 --> 00:20:27,040
And this notion of financial discipline was given a huge boost last week.

291
00:20:27,040 --> 00:20:34,520
Got very little notice in the media, but what happened was that Treasury has agreed to withhold

292
00:20:34,520 --> 00:20:38,320
payments to municipalities of their equitable share.

293
00:20:38,320 --> 00:20:42,640
Equitable share is simply the money which is allocated from the national budget to help

294
00:20:42,640 --> 00:20:44,160
municipalities.

295
00:20:44,160 --> 00:20:49,600
They will hold back those equitable share payments from municipalities who have debt

296
00:20:49,600 --> 00:20:50,800
with water boards.

297
00:20:50,800 --> 00:20:54,240
Now that's a very, very encouraging development.

298
00:20:54,240 --> 00:20:56,840
Imagine if we can do the same thing with electricity.

299
00:20:56,840 --> 00:21:04,360
Now needless to say, the municipalities affected will be up in arms and it will ruffle their

300
00:21:04,360 --> 00:21:08,520
feathers, but it is clearly the right thing to do.

301
00:21:08,520 --> 00:21:15,140
And as I've said, if one can repeat that arrangement with electricity, it will lead to a big improvement.

302
00:21:15,140 --> 00:21:18,160
The Department of Water and Sanitation must get the credit here.

303
00:21:18,160 --> 00:21:20,120
They lobbied for this change.

304
00:21:20,120 --> 00:21:23,800
They've been lobbying for the last year and Treasury has now agreed.

305
00:21:23,800 --> 00:21:27,400
So it's a step forward.

306
00:21:27,400 --> 00:21:33,720
So we've now talked about projects initiated by the public sector, even if it's not fully

307
00:21:33,720 --> 00:21:36,180
paid for by them.

308
00:21:36,180 --> 00:21:37,420
What about the private sector?

309
00:21:37,420 --> 00:21:39,360
What about private sector investment?

310
00:21:39,360 --> 00:21:45,800
I've said it so many times, I sound like a broken record or a stuck CD or whatever

311
00:21:45,800 --> 00:21:49,840
the modern equivalent will be.

312
00:21:49,840 --> 00:21:54,360
But mining 100 years ago was the investment frontier.

313
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That is what made South Africa modern.

314
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Now it is energy.

315
00:21:59,160 --> 00:22:03,320
And if one looks at the numbers, they are really quite astonishing.

316
00:22:03,320 --> 00:22:10,800
If we can just take an overview of energy generation, up to date, we've got 8,000 megawatts

317
00:22:10,800 --> 00:22:17,440
of new capacity, most of it renewable capacity, which have been contracted to sell to the

318
00:22:17,440 --> 00:22:22,360
grid and that brought an investment of 270 billion.

319
00:22:22,360 --> 00:22:23,600
It's a huge amount of money.

320
00:22:23,600 --> 00:22:24,600
That's the past.

321
00:22:24,600 --> 00:22:25,600
That's behind us.

322
00:22:25,600 --> 00:22:29,080
What is going on right now as we talk is a bit window.

323
00:22:29,080 --> 00:22:32,880
Bit windows is something which is driven by the government.

324
00:22:32,880 --> 00:22:38,320
It carries a government guarantee and you work through official processes.

325
00:22:38,320 --> 00:22:42,040
So it's basically a 10 that the government puts out.

326
00:22:42,040 --> 00:22:49,760
Bit window 7 for 5,000 megawatts, a bit window for 650 megawatts of batteries and then a

327
00:22:49,760 --> 00:22:55,840
bit window for 2000 megawatts of gas, presumably in Richards Bay.

328
00:22:55,840 --> 00:23:03,700
The estimated investment here is 180 billion grand plus, according to the budget review.

329
00:23:03,700 --> 00:23:11,160
But what has happened since 2022, since President Ramaphosa deregulated the electricity market

330
00:23:11,160 --> 00:23:16,560
is that there's been a huge swing from public procurement to private procurement.

331
00:23:16,560 --> 00:23:20,880
Private procurement simply meaning private companies doing their own thing, putting up

332
00:23:20,880 --> 00:23:26,880
a solar farm, putting up a wind farm, entering into contracts to buy power from people who

333
00:23:26,880 --> 00:23:31,600
have a solar farm or buy power from people who have too much power.

334
00:23:31,600 --> 00:23:36,880
That deregulation of the industry really made a huge difference.

335
00:23:36,880 --> 00:23:43,160
What we currently have on a table or should I say in the pipeline is 22,500 megawatts

336
00:23:43,160 --> 00:23:49,680
of projects with an estimated investment value of 390 billion grand.

337
00:23:49,680 --> 00:23:54,200
We're talking huge amounts of money here and this will carry on.

338
00:23:54,200 --> 00:23:58,960
I mean, essentially we're building a new electricity system in South Africa.

339
00:23:58,960 --> 00:24:05,400
You know, we mustn't forget that ISCOM has already determined way back that of the 14

340
00:24:05,400 --> 00:24:11,720
coal-fired power stations, eight will close down by 2034, 2036.

341
00:24:11,720 --> 00:24:14,840
And is that still true in spite of political opposition?

342
00:24:14,840 --> 00:24:15,840
Yes, yes.

343
00:24:15,840 --> 00:24:21,040
Some units in some power stations were given permission by the government to close down

344
00:24:21,040 --> 00:24:22,040
later.

345
00:24:22,040 --> 00:24:27,360
So they will close down later, but it's still within the 2034 timeframe.

346
00:24:27,360 --> 00:24:32,160
So just think about it, you've got 14 power stations serving the country now without load

347
00:24:32,160 --> 00:24:33,160
shedding.

348
00:24:33,160 --> 00:24:34,800
You close eight of them down.

349
00:24:34,800 --> 00:24:36,840
You've got to replace that capacity.

350
00:24:36,840 --> 00:24:40,240
It's going to be a huge investment.

351
00:24:40,240 --> 00:24:43,720
And that is just all on the generation side.

352
00:24:43,720 --> 00:24:49,220
If you move to transmission, a very similarly bullish picture emerges.

353
00:24:49,220 --> 00:24:50,220
What do we know?

354
00:24:50,220 --> 00:24:53,280
We know that transmission is a problem for generation.

355
00:24:53,280 --> 00:24:55,100
We know that it's a choke point.

356
00:24:55,100 --> 00:24:57,600
So what is needed to fix generation?

357
00:24:57,600 --> 00:25:04,760
Well, depending on what timeframe you talk about, it's between 200 billion and 390 billion

358
00:25:04,760 --> 00:25:08,600
depending whether you talk five years or 10 years.

359
00:25:08,600 --> 00:25:13,520
So the National Transmission Company, which has now been taken out of ESCOM and is a self-standing

360
00:25:13,520 --> 00:25:21,160
company has got 112 billion around earmarked over the next five years specifically to build

361
00:25:21,160 --> 00:25:24,280
new infrastructure, transmission infrastructure.

362
00:25:24,280 --> 00:25:26,640
Now to unlock more funds, same story again.

363
00:25:26,640 --> 00:25:28,120
So that's from the budget?

364
00:25:28,120 --> 00:25:32,160
Well, it's basically from the ESCOM balance sheet.

365
00:25:32,160 --> 00:25:37,720
Yeah, it's from the ESCOM board, in this case the transmission company balance sheet, with

366
00:25:37,720 --> 00:25:40,440
probably some help from the budget.

367
00:25:40,440 --> 00:25:44,960
To unlock further funds, government has authorized the independent power producers office to

368
00:25:44,960 --> 00:25:52,680
wonder drove the renewal program to run a pilot program to procure the first private

369
00:25:52,680 --> 00:25:55,180
independent transmission project.

370
00:25:55,180 --> 00:25:58,400
So it's completely new terrain for us in South Africa.

371
00:25:58,400 --> 00:26:03,720
You've got a transmission line, it serves a number of producers and consumers, but it's

372
00:26:03,720 --> 00:26:09,040
built by not by the state monopoly, it's built by a private entity.

373
00:26:09,040 --> 00:26:10,600
Sounds a bit like a toll road.

374
00:26:10,600 --> 00:26:13,200
Yeah, I think that's a good comparison.

375
00:26:13,200 --> 00:26:14,840
It's a good comparison.

376
00:26:14,840 --> 00:26:20,200
Now a new credit guarantee vehicle, which was developed with the help of the World Bank,

377
00:26:20,200 --> 00:26:22,000
will support this pilot project.

378
00:26:22,000 --> 00:26:26,160
What it basically means is that the private sector that comes in to provide the money

379
00:26:26,160 --> 00:26:33,040
will enjoy some guarantee on their funds that they advance, but the state will not be on

380
00:26:33,040 --> 00:26:40,040
for a 100% guarantee, which is still the case with the older generation projects, and one

381
00:26:40,040 --> 00:26:41,760
wants to move away from that.

382
00:26:41,760 --> 00:26:45,640
You want to move away from state guarantees where people must assess the risk and take

383
00:26:45,640 --> 00:26:50,680
it and collect the profits, but also live with the losses.

384
00:26:50,680 --> 00:26:57,720
Nevertheless, this transmission pilot project provides for a credit guarantee, which balances

385
00:26:57,720 --> 00:27:02,880
between the private companies and the government, and that should help to generate many more

386
00:27:02,880 --> 00:27:08,440
funds, much more funds for building transmission projects.

387
00:27:08,440 --> 00:27:15,200
If we just look at where we are, I've already said that the National Transmission Company

388
00:27:15,200 --> 00:27:21,120
is looking at 112 billion rands worth of projects over the next 10 years.

389
00:27:21,120 --> 00:27:28,240
Currently they have 31 projects in construction now, which will release about 16,000 megawatts

390
00:27:28,240 --> 00:27:35,920
of connection capacity, and then by 2034, six years later, they want to do another 30

391
00:27:35,920 --> 00:27:38,040
projects to connect 40,000.

392
00:27:38,040 --> 00:27:45,040
So you're looking at 56,000 megawatts of transmission capacity over the next 10 years.

393
00:27:45,040 --> 00:27:46,440
That's a significant investment.

394
00:27:46,440 --> 00:27:51,920
It is a significant improvement that will come to the transmission grid.

395
00:27:51,920 --> 00:27:57,760
I don't know if this works, but how does that compare with the whole system at the moment?

396
00:27:57,760 --> 00:27:59,580
No, it's substantial.

397
00:27:59,580 --> 00:28:05,000
We haven't invested a lot of money in transmission in the last 10 years and even longer.

398
00:28:05,000 --> 00:28:11,400
In fact, I think, if I remember correctly, last year, less than 100 kilometers of transmission

399
00:28:11,400 --> 00:28:13,740
lines were built.

400
00:28:13,740 --> 00:28:18,760
The numbers that we're talking about here, you're talking about 1200 to 1400 kilometers

401
00:28:18,760 --> 00:28:21,960
of transmission lines per annum.

402
00:28:21,960 --> 00:28:26,560
So it's a huge step up in terms of building new capacity.

403
00:28:26,560 --> 00:28:29,200
You've been saying green is the new gold.

404
00:28:29,200 --> 00:28:31,600
So you still see that happening?

405
00:28:31,600 --> 00:28:32,600
Oh, absolutely.

406
00:28:32,600 --> 00:28:37,640
You know, if we try and pull all these numbers together, because they're all over the show,

407
00:28:37,640 --> 00:28:42,160
basically we need 1.5 trillion rand for the next.

408
00:28:42,160 --> 00:28:48,880
The official timeframe is five years, but let's make it five to seven years, 1.5 trillion

409
00:28:48,880 --> 00:28:54,040
to execute all these projects and help with the energy transition.

410
00:28:54,040 --> 00:28:59,320
And then in the period after that, the next decade, we will need 3 trillion rand.

411
00:28:59,320 --> 00:29:04,720
And these are enormous amounts of money, if you think of the size of our economy.

412
00:29:04,720 --> 00:29:05,800
Where will that money come from?

413
00:29:05,800 --> 00:29:07,040
Well, we've discussed that before.

414
00:29:07,040 --> 00:29:13,640
It'll be a combination of public money, private money, philanthropic money, aid assistance

415
00:29:13,640 --> 00:29:16,280
from the developed world, and so on.

416
00:29:16,280 --> 00:29:21,280
But people that I speak to generally do not see money as the big problem.

417
00:29:21,280 --> 00:29:28,000
The much bigger problem is having bankable projects that can be executed that are credible

418
00:29:28,000 --> 00:29:31,600
on which you can put money and take a wager.

419
00:29:31,600 --> 00:29:33,120
That is where the bigger problem lies.

420
00:29:33,120 --> 00:29:36,940
The problem doesn't lie with money.

421
00:29:36,940 --> 00:29:39,000
And that's human capital.

422
00:29:39,000 --> 00:29:41,040
That's human capital, it's skills.

423
00:29:41,040 --> 00:29:45,040
That's why things like the budget facility are important, things like infrastructure

424
00:29:45,040 --> 00:29:46,320
South Africa.

425
00:29:46,320 --> 00:29:52,740
We've got to build up the skills base that can again underpin a huge infrastructure drive.

426
00:29:52,740 --> 00:29:58,840
If we get to sow what in the first place, there has to be more investment, it sounds

427
00:29:58,840 --> 00:29:59,840
like.

428
00:29:59,840 --> 00:30:04,120
If we want to turn the country into a construction site, yes.

429
00:30:04,120 --> 00:30:08,240
Turning the country into a construction site is the political ambition.

430
00:30:08,240 --> 00:30:12,960
The current 15% of GDP being spent on investment is not enough.

431
00:30:12,960 --> 00:30:16,560
We've got to get that number up.

432
00:30:16,560 --> 00:30:17,840
How do you get the number up?

433
00:30:17,840 --> 00:30:22,080
You can only get it really up by involving more capital from the private sector.

434
00:30:22,080 --> 00:30:28,560
And here I think the change in government attitude that we've seen since about 2018-2019

435
00:30:28,560 --> 00:30:30,800
is a very important change.

436
00:30:30,800 --> 00:30:34,640
Government used to work with the concept of pre-scrub assets, not government so much,

437
00:30:34,640 --> 00:30:35,640
but ANC.

438
00:30:35,640 --> 00:30:38,440
There's been a distinct move away from that.

439
00:30:38,440 --> 00:30:44,600
The emphasis now is on involving private money, linking it up with public money, and thereby

440
00:30:44,600 --> 00:30:46,600
enlarging the pool of funds.

441
00:30:46,600 --> 00:30:50,880
That is happening and I would expect that trend to continue over the next couple of

442
00:30:50,880 --> 00:30:52,680
years.

443
00:30:52,680 --> 00:30:55,820
The important thing is, as I've said, a pipeline of projects.

444
00:30:55,820 --> 00:30:57,560
That's what it's all about.

445
00:30:57,560 --> 00:31:02,480
And that's why the work of the budget facility and the work of infrastructure, SA, are important.

446
00:31:02,480 --> 00:31:04,520
They're building up more and more projects.

447
00:31:04,520 --> 00:31:06,320
I'm quite sure not enough.

448
00:31:06,320 --> 00:31:11,280
One year complaints from the financial sector that there are not enough of these projects,

449
00:31:11,280 --> 00:31:13,320
but there's certainly more than what there was.

450
00:31:13,320 --> 00:31:16,840
And I think that's the trend to watch.

451
00:31:16,840 --> 00:31:21,080
And the other trend that you highlight in your So What?

452
00:31:21,080 --> 00:31:27,840
Is the diminishing role of SOEs in the context of this shifting political atmosphere.

453
00:31:27,840 --> 00:31:28,840
Yes, absolutely.

454
00:31:28,840 --> 00:31:35,400
Look, the SOEs, it's a simple reality of state capture that they are now in a bad shape.

455
00:31:35,400 --> 00:31:40,480
ESCOM basically can't undertake any investment projects.

456
00:31:40,480 --> 00:31:41,480
Neither can Transnet.

457
00:31:41,480 --> 00:31:47,600
Transnet will probably have to get some support from the FISCUS, like ESCOM is getting.

458
00:31:47,600 --> 00:31:50,800
So they're not going to have huge infrastructure projects.

459
00:31:50,800 --> 00:31:56,400
And that's why that number has come down from two-thirds, one-third to 72%, 28%.

460
00:31:56,400 --> 00:31:58,160
I think that's the reality.

461
00:31:58,160 --> 00:32:01,000
And then the question is, so who will take their place?

462
00:32:01,000 --> 00:32:07,640
And the answer is the place will be taken by joint public and private partnerships and

463
00:32:07,640 --> 00:32:08,640
financing.

464
00:32:08,640 --> 00:32:14,240
And how would you summarize that, the So What about the practicalities of making it happen?

465
00:32:14,240 --> 00:32:20,600
Well, as I've said, it's all about a credible pipeline, which we see is being built and

466
00:32:20,600 --> 00:32:24,840
will probably the pipeline will get bigger and bigger as we go on.

467
00:32:24,840 --> 00:32:29,680
And what that will do, quite apart from money, is it should help with discipline and it should

468
00:32:29,680 --> 00:32:33,560
help with better management, as we've seen with toll roads.

469
00:32:33,560 --> 00:32:39,560
When money flows and there's somebody responsible for collecting it, but also responsible for

470
00:32:39,560 --> 00:32:43,080
performance, there's accountability.

471
00:32:43,080 --> 00:32:48,400
And that I think will help to change the public infrastructure in South Africa.

472
00:32:48,400 --> 00:32:51,880
And of course, the more you change the public, the more confidence there is in the private

473
00:32:51,880 --> 00:32:52,880
sector.

474
00:32:52,880 --> 00:32:56,120
The more confidence there is in the private sector, the more they're willing to put in

475
00:32:56,120 --> 00:33:02,560
another machine or put up another factory or undertake some kind of an expansion somewhere.

476
00:33:02,560 --> 00:33:06,080
These things feed on each other.

477
00:33:06,080 --> 00:33:09,160
And of course, we wouldn't have been here.

478
00:33:09,160 --> 00:33:11,720
That's one of those big South African ironies.

479
00:33:11,720 --> 00:33:14,920
We wouldn't have been here if we didn't have the pain of load shedding and the pain of

480
00:33:14,920 --> 00:33:16,400
water shedding.

481
00:33:16,400 --> 00:33:21,600
Load shedding and water shedding is helping to push our body politic towards involving

482
00:33:21,600 --> 00:33:29,240
more private sector and involving more money and more expertise from the private sector.

483
00:33:29,240 --> 00:33:30,240
Thank you very much.

484
00:33:30,240 --> 00:33:31,240
Fascinating.

485
00:33:31,240 --> 00:33:32,240
Thank you.

486
00:33:32,240 --> 00:33:37,240
Thank you for listening to the So What podcast.

487
00:33:37,240 --> 00:33:42,280
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488
00:33:42,280 --> 00:33:46,400
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489
00:33:46,400 --> 00:33:48,240
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490
00:33:48,240 --> 00:34:16,320
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