Infrastructure delivery has been the economic buzzword for years in Africa where the backlogs are notorious and represent a major impediment to the continent's economic recovery.
The realisation that an efficient infrastructure system is crucial to underpin faster economic growth has also become a key tenet of the government's economic strategy. It has committed more than R370bn in public spending to public infrastructure over the next five years.
This should bode well for finance institutions such as the public-private partnership (PPP) unit of the Industrial Development Corporation (IDC), which was launched four years ago and has been working mainly in Africa outside SA, but is now readying for the infrastructure drive on its home turf.
The head of the PPP unit Lindi Toyi describes her unit's mission as investing debt and equity in industrial infrastructure sectors ranging from power, water and telecommunications to IT and transport. Her mandate allows her to invest both in SA and north of the Limpopo but to date 80% of her R2,5bn portfolio is outside SA.
But finding work in government's infrastructure programme won't be easy. The IDC is prohibited from funding municipalities and government departments, where a lot of the rollout is taking place. Similarly, the large SA public-sector corporations, such as Eskom, Transnet and the TCTA water utility, which collectively plan on spending up to R180bn over the next five years, have their own, often cheaper, sources of funding.
That leaves the IDC to tackle more strategic projects in SA, such as the Pebble Bed Modular Reactor (PBMR), smaller BEE ventures or develop new funding mechanisms. Alternatively it can finance subordinate debt issues by entering into funding/syndicating deals with commercial bankers and other development finance institutions.
Either way, the PPP unit operates under similar criteria to most business units within the IDC; as much as it is looking for solid financial returns it also has a strong developmental bias.
"Job creation is a crucial factor in determining our investments. Other development criteria include the support of BEE, small and medium-sized enterprises (SMEs) as well as investments in rural areas and poorer provinces.
"Furthermore, when we invest in the rest of Africa we try to ensure that as many goods and services as possible are procured from SA," Toyi says.
The funding is broadly structured into loan funding and acquiring equity in a project. Export financing and preference share issues are part of the package.
For most projects a R500m maximum funding limit has been prescribed though for strategic projects the PPP unit can exceed that mandate, as in the case of PBMR.
Investing in the rest of Africa has its own challenges. For one, few financial organisations are willing to carry the substantial risk on their own. Toyi says many institutions, such as the African Development Bank and the World Bank's Infrastructure Finance Corporation , normally cooperate with the IDC.
Alternatively, private-sector institutions, such as banks, call on the IDC to participate in the loan funding by selling down some of the debt to it. For example, Standard Bank sold down some of the debt it loaned to MTN for its African expansion to the IDC. In total the IDC forwarded about US$60m to MTN, an investment that has proved more than lucrative.
Getting insurance for export credit funding is also a must on the continent . The IDC works closely with the department of trade and industry's Export Credit Insurance Company (ECIC) and the IDC's international finance SBU on many African projects.
The IDC's investment history in SA to date highlights two broad trends - the support of BEE ventures and subordinate funding to larger corporations, such as MTN, Cell C, SA Airways and Comair. (See table)
In the 2005/2006 financial year to end-March the IDC supported two local BEE deals: the Ideco-Afis group, which is installing fingerprint recognition technology at many government departments, and the Thinta Thinta Telecoms consortium.
The latter is one of seven companies that have been awarded regional telecommunications licenses under government's under-services area telecom licenses (Usal) project. The R52m loan funding to Thinta Thinta is proving a good investment, says Toyi.
"The company is exceeding its subscriber number targets and is on track to meet its repayment schedule," she says. The IDC is actively looking at backing other winning bidders in the 21 demarcated license areas.
The IDC is looking at a similar developmental funding approach in other infrastructure areas such as water and health care. Toyi sees opportunities in public-private partnerships for rural hospitals, water treatment plants and sanitation projects.
"These are ideally suited to facilitate BEE and SME involvement and are most likely located in either townships or rural areas," she says.
It is in the energy sector, though, that Toyi envisages that much of her unit's future funding will be focused on. A significant number of projects have either already been finalised or are being developed. These include:
- A 15% stake in the PBMR and co-funding the feasibility for the rehabilitation of the Inga hydropower project in the Democratic Republic of Congo. (See adjacent stories)
- Developing financial instruments, such as performance bonds, that underwrite the performance of BEE contractors in the current Eskom power plant projects, as well as the Gautrain intercity link.
- Investing in a Cape Town oil rig and ship-repair platform and a Saldanha oil rig and shipbuilding facility. The total cost of the project, which is driven by German company MAN Ferrostaal, is estimated at R1,7bn, of which the IDC could fund up to 10%.
