Show us the money 2016 - Development Bank of Southern Africa
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Financial Mail Page 1 -23/06/16 05:13:47 PM
Financial Mail
INFRASTRUCTURE
ANNUAL REPORT WWW.FINANCIALMAIL.CO.ZA
2016
Show
us
the
money
Rusty economy
undermines
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Financial Mail Page 2 -23/06/16 02:38:45 PM
Financial Mail Page 3 -23/06/16 04:33:41 PM
FM CONTENTS Building Africa.
Building the
Future.
18
Investing in new locomotives
Transnet in drive to attract
22
freight from rail to road
TŚĞ WŽůĚ BĂŶŬ Ğ -
mates that Africa will need
25
US$93 billion* a year over
the next decade to meet its
current infrastructure short-
falls, if it is to create mean-
ingful economic growth.
Kenya’s Mombasa-Nairobi Student housing For us at GIBB, we believe we
project is set to ease New asset class for ĂĞ Ă ŽĨ ŚĞ Žů ŽŶ͘ WŚĂ
transportation in East Africa property investors Ğ ĚŽ ŝ ĂŶ Ğ ĞŶ Ăů ĐĂ Ăů
to change people’s lives. We
do this every day by bring-
Fixed investment: The big picture 19 Transnet ŝŶŐ ĐŽŵŵŶŝ Ğ ŽŐĞ ŚĞ͖
4 Build on the gains Pulling its weight developing landscapes and
———————————————————————————————————— environments where oppor-
Government-business talks arranged by Ŷŝ Ğ ĞŽůĞ Ă Ă ŶĂ Ăů
the finance ministry could boost 20 Construction
co-investment in infrastructure Sector in survival mode consequence of infrastructure
———————————————————————————————————— ———————————————————————————————————— growth.
Sector developments 22 Student housing
9 Telecommunications Enter the mainstream A Ă ůĞĂĚŝŶŐ ŵů ͲĚŝ Đŝ ůŝ-
Data overtakes voice ———————————————————————————————————— nary black-owned engineer-
———————————————————————————————————— 23 East Africa oil boom ŝŶŐ ĐŽŶ ů ĂŶĐ Įŵ Ğ ĂĞ
10 Mining New investment hotspot ĐŽŵŵŝĞĚ Ž Ž Ă ŝŶ
Shift to strategic investing ———————————————————————————————————— ŐŽŝŶŐ Ă ĐŽŶ ŶĞŶ ͘
————————————————————————————————————
Corporate report: Standard Bank
11 Column: Ryan Ravens
Get the house in order 24 Infrastructure projects
———————————————————————————————————— Change of pace needed
Corporate report: DBSA 25 Africa
12 Development funding Opportunities abound
Staying the course
13 Projects unit
Unlocking investment INFRASTRUCTURE EDITOR:
www.gibb.co.za
14 Infrastructure delivery division Razina Munshi marketing@gibb.co.za
Transcends normal funding PRODUCTION EDITOR: Tel: +27 (0)11 519 4600
15 IDD Services Maseipati Tsotsotso Level 2 BBBEE Contributor
Delivery at work PROJECTS CO-ORDINATOR:
Matshepo Gumede • Dams, Hydropower & Underground
16 SADC
Works • Environmental • Power & Energy
Integration bears fruit COVER DESIGN:
———————————————————————————————————— ͻ IŶĞŐĂĞĚ IŶĨĂ Đ Ğ ͻ TĂŶ ŽĂŽŶ
Vuyo Singiswa and iStock
• Architecture
Sector developments LAYOUT:
* World Bank Group Infrastructure Strategy Update FY2012-
17 Energy Debbie van Heerden
2015 (Africa will need US$ 93 billion per annum for the next
SA’s giant leap into green ADVERTISING EXECUTIVE: 15 years to fill infrastructure gaps; 2010 to 2025)
———————————————————————————————————— Nigel Twidale
18 Rail transport
Trucks trump tracks
Financial Mail 3
Financial Mail Page 4-5 -23/06/16 04:21:14 PM
FM SPECIAL REPORT INFRASTRUCTURE
FIXED CAPITAL INVESTMENT recent private investment is energy. The
Renewable Energy Independent Power Pro-
projects have been
approved. These projects WEAK PRIVATE INVESTMENT
ducer Procurement (REIPP) programme has will contribute 6,000 MW to Investment, business confidence and profits
driven R200bn worth of investment since the national grid.
2012. Coal and gas independent power pro- Of the capacity procured, Private investment Gross operating surplus Business confidence
Build ducers (IPPs) are next.
“Lots of reference has been made to the
IPP programme. The involvement of the pri-
vate sector contributed largely to the success
of that project, and it is a model that there is
3,922 MW (from bid win-
dows 1, 2 and 3) are at var-
ious stages of construction
or have commenced with
commercial operation. By
% change y/y
35
25
Index
90
80
70
on the
consensus about pursuing,” Ratsoma says. June 2015, 37 IPPs had start- 15
60
Government expects to use that model in ed commercial operation,
other sectors, though Ratsoma would not adding 1,860 MW capacity to 5 50
say where, only that they were “beyond the power system (4% of
40
energy”. SA’s total installed capacity). -5
gains
The model could be replicated for health Construction lead times 30
facilities, hostels, in water provision and for completed projects have -10
water treatment, says head of infrastructure averaged between 15 20
finance at RMB Werner van Oudenhove. months and two years. -15 10
Traditional public private partnerships The IPP model relies on 97 99 01 03 05 07 09 11 13 15*
(PPPs) were negotiated individually and are the existence of a frame- * Covers the first three quarters of the year
SOURCE: 2016 NATIONAL TREASURY
generally structured around one very large work agreement with gov-
project, such as the Gautrain. ernment. That ensures that
Though individual renewable energy there is one authority to oversee implemen- sheet.”
projects have been small in SA, the IPP tation, and gives the contracted producer The benefits go both ways. Infrastructure
model has enabled sufficient scale. Four bid- one government office to communicate is built, even if government cannot afford to
ding rounds have taken place, and over 90 with. fund it. And the private sector benefits with
The framework agreement work, which drives employment and
oversees contracts that are repli- growth.
Robert Tshabalala
cated for a number of producers, The state of SA’s economy is on every-
making them easier, quicker and one’s minds. Government debt has climbed
cheaper to roll out. And with to 45% of GDP.
each bidding round, the cost of Growth is weak, unemployment has
procurement declines. increased and the costs of goods and ser-
Strong political support has vices have shot up, putting pressure on con-
also been vital to the pro- sumers. SA may have narrowly averted a
gramme’s success. Departments sovereign credit downgrade this month
like national treasury, energy (which would have sent its credit rating into
and public enterprises worked junk status), but the danger hasn’t passed.
together successfully. Eskom, Van Oudenhove says local markets —
Government spending was expected to rise. But with the economy which signed power purchase equities, bonds and foreign exchange — had
in tatters, it will look to the private sector to fund public projects agreements with the IPPs, also
played an important role.
priced in a downgrade. SA’s offshore debt
market, in particular, is trading as if the
Van Oudenhove believes the country has already lost its investment grade
P
weak economy may drive status.
lans to invest in better roads, more WHAT IT from logistics service way to government, says national treasury greater partnerships. “It could A downgrade drives up the cost of long-
schools and hospitals and better
public transport infrastructure may MEANS providers to design, build,
operate and maintain an
deputy director-general of economic policy,
Monale Ratsoma.
push policy more towards the
private procurement of infra-
term funding, says Van Oudenhove. And the
weak rand has already driven up capital
be forced to slow in the face of
declining economic growth and static gov-
STATE, BUSINESS inland container terminal
in Tambo Springs, east of
Ideas were submitted to the infrastruc-
ture stream, one of the committees chaired
structure because departments
cannot afford to put a large pro-
costs because it has made imported com-
ponents more expensive.
ernment revenue. National treasury is tight- TACKLE ECONOMIC Johannesburg. by Daniel Matjila and Sim Tshabalala, which ject on government’s balance The economy weighs heavily on state-
‘‘
ening its belt. GROWTH AND The concession will form part of efforts to achieve a social com-
But the clampdown in public spending INVESTMENT extend for 20 years and pact between government, business, labour
may open the way for the private sector to will be Transnet’s biggest and civil society. The talks were initiated
finance more public sector projects. This has WARY PRIVATE privately funded project. after the rand crashed when former finance
been one of the business community’s most SECTOR SITTING The rail, port and minister Nhlanhla Nene was fired in
important proposals at government-business
ON LARGE CASH pipeline utility also December last year.
talks arranged by the presidency and
PILE
announced plans to devel- Ratsoma says proposals for co-ownership
LOTS OF REFERENCE HAS BEEN MADE TO THE IPP
PROGRAMME. THE PRIVATE SECTOR CONTRIBUTED LARGELY
finance minister earlier this year. op nine other projects with of assets have also been heard by an inter-
Traditional resistance towards private private involvement (see ministerial committee chaired by deputy
participation in assets traditionally domi-
nated by the state and its enterprises has
page 19).
Recommendations for how the private
president Cyril Ramaphosa. The same com-
mittee has also been briefed by government TO THE SUCCESS OF THAT PROJECT, AND IT IS A MODEL
limited its use. But recent developments
may change that.
sector can participate in infrastructure pro-
jects (including projects administered by
about its plan to consolidate its airline busi-
ness. THAT THERE IS CONSENSUS ABOUT PURSUING
Transnet this month invited proposals state-owned enterprises) have made their The sector that has benefited most from MONALE RATSOMA
4 Financial Mail July 1, 2016 July 1, 2016 Financial Mail 5
Financial Mail Page 6 -23/06/16 04:21:28 PM
FM SPECIAL REPORT INFRASTRUCTURE
RELYING ON STATE ENTERPRISES
owned enterprises. Demand has fallen The National
below projections that the expansion pro- Development Plan
jects of utilities such as Transnet relied sets a target of 30% Public sector infrastructure spending
upon. by 2030, a rate con- Rbn % of GDP
The ability of state enterprises to raise sistent in high- 300 9
funds is inextricably linked to the state of growth economies. It
8
the economy; and the negative commodity says public sector 250
cycle has hurt investment plans. gross fixed capital 7
Mining companies have also been hard formation should
hit. Many companies failed to invest during reach 10% (from 200 6
the last resource sector boom, and found about 7%) by then.
themselves unable to once prices slumped. Investec expects 5
150
But Van Oudenhove says compared with fixed capital forma-
4
other emerging markets, the depth of SA’s tion to decline to
banking market, its track record of corpo- 20% of GDP in 2016. 100 3
rate governance, and the success of the IPP But economist
programme makes local infrastructure an Annabel Bishop pro- 2
attractive investment, even for foreign cap- jects modest 50
ital. increases from 2017. 1
But investment rates are too low to drive In a report, Bish- 0 0
greater growth. Gross fixed capital forma- op says growth in 98/ 99/ 00/ 01/ 02/ 03/ 04/ 05/ 06/ 07/ 08/ 09/ 10/ 11/ 12/ 13/ 14/
tion, a measure of private sector fixed 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15
investment activity, investment is likely State-owned companies Provinces
grew by 1.4% in to suffer in 2016, Local government National departments
2015, following a particularly as inter- Public entities Public private partnerships
contraction of est rates rise.
Total as a share of GDP (right axis)
0.4% in 2014, A good indication
according to the of future spending SOURCE: NATIONAL TREASURY
SA Reserve Bank. can be found in
As a percentage Nedbank’s capital expenditure project list- game (see page 20).
of GDP, gross fixed ing. Companies like Group Five have had to
capital formation is It provides the number and value of new spread their wings. CEO Eric Vemer says
20.6%. projects (worth more than R20m) 70% of Group Five’s order book still com-
announced during 2015. Projects with a val- prises SA-based work. But that is set to
ue of R152.4bn were announced in 2015, a change. Within three years, he believes it
jump from R58.6bn in 2014. could drop to 50%, or even 40%.
Some projects may take a while to mate- Civil engineering work has shown little to
rialise, but the increase is good news. no growth. Where there is work — in road
As in previous years, private projects construction for example — projects are
dominated, with 56 new projects announced smaller, competition is high, and margins
accounting for two-thirds of the total num- are low.
ber. In value terms the projects amounted to Engineering and construction provides
R131,1bn or 86% of the total value. 85% of Group Five’s revenue, with the rest
This is despite the private sector sitting split between investments and concessions;
on a growing cash pile. Nonfinancial private and manufacturing. But engineering and
companies held deposits of R725bn at the construction contributes just 13% of the
end of March, up from R670bn a year earlier, company’s core operating profit.
Bank data shows. Building work like shopping malls, office
General government and state-owned blocks and public sector health facilities has
companies announced 18 and 10 new pro- been a fairly stable source of income. But
Eric Vemer jects respectively, worth just over R10bn the engineering division’s growth has
each. But government facilitated R23bn increasingly come from newer areas of
Construction sector forced expertise like energy. Group Five has been
worth of new renewable energy projects
to adapt to change announced in 2015, as part of the third involved in some IPP projects.
round of the IPP programme. It is bidding for energy projects across
Large projects announced in 2015 include Africa, says Vemer. The US$410m Kpone
the R9,3bn investment to ramp up the Pal- Independent Power Project in Ghana, which
abora copper mine in Limpopo and extend reached financial close in the current year,
its life to 2033. Others are BMW’s R6bn is a good example of the type of project the
upgrade of its Rosslyn plant and VWSA’s company hopes to secure more of. The
R4,5bn investment plan. 350 MW power plant is an engineer, procure
These projects are still likely to be too and construct (EPC) contract.
little to keep building contractors happy. Its Eastern European concessions busi-
SA’s construction companies have had to ness is a strong driver of growth. It has
change their business models to stay in the established toll road concessions in Poland
6 Financial Mail July 1, 2016
Financial Mail Page 7 -23/06/16 04:12:15 PM
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41376 Sephaku Cementprofile resize v2.indd 1 2016/06/14 9:07 AM
Financial Mail Page 8-9 -23/06/16 04:20:37 PM
FM SPECIAL REPORT INFRASTRUCTURE
been in the pipeline for
years. SA has superior reg-
lengthy and costly competition commission
probe into construction sector collusion.
T E L ECO M M U N I CAT I O N S MTN’s aggressive investment has rivalled
Vodacom’s, which by most measures is the
Data overtakes voice
ulation, access to capital Vemer is “cautiously optimistic” that the largest mobile operator in the country.
and better skills than other talks will speed up the rollout of new public Vodacom increased investment from
African countries. It also projects. “We are encouraged by the open- R8.6bn to R8.7bn in the year ended March.
‘‘
has an excellent record of ness of the dialogue. It does seem like it is The investment in their
payment, particularly for more than just another talk shop.” networks comes just as
PPPs. He says there is a better alignment The days of referring to Telkom as the dom- the way that people are
But it frequently takes between government and business on how inant force in the local telecommunications using their phones has hit
longer to reach financial to drive growth and investment. industry may not be over, but they are cer- an inflection point. Gold-
close on a large public The new communication channel could tainly numbered. stuck has noticed some-
construction project in SA, also be a way to overcome concerns about Telkom’s 140,000 km of fibre and its net-
THE MILLISECONDS SAVED IN ROUTING DATA thing in Vodacom’s latest
LOCALLY DOES NOT SEEM LIKE MUCH, BUT
compared with neigh- implementation, and the disconnect work of local exchanges have loomed large results, released in May.
bouring countries. between the will of government depart- over the sector but the rise of parallel infra- Data revenue was up 27%
The establishment of
the Presidential Infrastruc-
ments and the state-owned enterprises they
oversee.
structure providers has challenged its posi-
tion. THEY MAKE A NOTICEABLE DIFFERENCE WHEN to R17.2bn but voice rev-
enue dropped 6% to
ture Co-ordinating Com-
mission in 2012 was
Van Oudenhove says he is nervous about
the interface with state enterprises. The suc-
The arrival of undersea cables like Sea-
com, along with the establishment of metro ACCESSING ONLINE SERVICES R24bn. If this trend con-
tinues, Goldstuck suggests
intended to address this cess of the gas IPP project, for example, is and long-haul telecom fibre network revenue from data could
Werner van Oudenhove problem, and provide a contingent on collaboration with Transnet. providers like Dark Fibre Africa (DFA) over pass voice within the year.
Weak economy may drive long-term pipeline of pro- But in the past, the intention of depart- the past few years has established the basis “once again impacted by the self-provision- The culture of people gazing at their
jects. ments like treasury, energy and public for other companies to lay fibre directly to ing of infrastructure by our competitors”. phones is here to stay. The number of
greater partnerships Eighteen strategic inte- enterprises have sometimes conflicted with consumers’ homes. Rival telecoms ecosystems are steadily smartphones on Vodacom’s network has
grated projects, mapping the will of state-owned enterprises, some of In theory, a customer can now connect to eating into Telkom’s market share, and are risen 22% to 14.2m and average data usage
infrastructure growth and which haven’t shown as much willingness to the Internet without touching Telkom’s net- also growing the market for data products. jumped 50% to 350 MB per month.
economic development collaborate with business. work. By exchanging data in SA, and not Ireland or Though the mobile operators have ben-
patterns around the coun- Government itself is also not homoge- When it comes to attracting investment the UK where it was previously done, it efited from a healthy rise in data usage,
try, were created. nous. Provinces and municipalities, which and growing its market, the telecom sector speeds up the Internet offered to customers.Goldstuck feels they are missing a beat
But information about administer much of the social and economic has been something of an outlier in the SA Owens says the milliseconds saved in when it comes to taking full advantage of
the commission’s progress infrastructure that requires urgent attention, economy, which hasn’t fully shaken off the routing data locally does not seem like this trend.
has been difficult to get. aren’t always prepared to hand over the effects of the 2008 financial crisis. much, but they make a noticeable difference He points to how Vodacom tried to get
The newly created gov- reins on a project, even if they don’t have The attractiveness of SA’s telecom sector when accessing online services like Netflix.government to penalise over-the-top ser-
ernment-business talks the capacity to do it themselves. can be seen in UK-based private equity firm In recent years companies like Teraco, vices. Instead, they should come up with
may yield more progress. SA’s economy is in need of an injection of Permira’s investment in data centre group Seacom, DFA and the numerous fibre-to- innovative products that accept that mes-
Builders hope that project confidence. An affirmed credit rating (even Teraco Data Environments for an undis- the-home firms have invested heavily in SA. saging apps like Whatsapp are here to stay.
flow will be one of the if a sovereign downgrade was only just closed amount. But Telkom has been no slouch either. Its Larry Claasen
issues that can be averted) is positive news. It is understood that Teraco had raised capital expenditure
addressed in the “infra- Better would be news that the IPP model R600m to set up its three data centres in amounted to R730m
and Hungary, and hopes to expand that to structure stream”. can be successfully replicated in sectors like Johannesburg, Cape Town and Durban. It is for the 2015 financial
Slovakia, Bulgaria, Russia and Turkey. Another priority is building trust. For the water and sanitation, and health, without in the process of building a fourth in Johan- year, which is up
But the industry is concerned about SA’s sector, the talks are a valuable way for rela- imposing high costs of basic services for nesburg , which will be the largest in SA. 15.3% on the 2014
inability to implement projects that have tions to be repaired and enhanced, after the those who cannot afford it. Razina Munshi World Wide Worx MD Arthur Goldstuck figure.
says the importance of the Teraco invest- “The main focus of
ment cannot be underestimated as it offers a this investment was
CONSTRUCTION TRENDS Central Africa East Africa North Africa Southern Africa West Africa
place for rival telecoms companies to
exchange data in a “neutral” environment.
on an accelerated fibre
rollout and increased
Number of projects per region Having neutral data centres is key to the investment in mobile
development of the sector because it means and LTE networks,
80 80 80
operators can rest assured their data will not providing wider cov-
70 70 70 be slowed down, which is sometimes the erage and faster con-
case when companies send data using a nection speeds,” said
60 60 60 rival’s centre. Telkom in a statement.
64
Jeremy Glyn
50 50 Goldstuck says this is why the safe har- This is a turnaround
50
52 bour that Teraco provides makes it a key from the previous
40 49 40 40 part in freeing SA from Telkom’s dominance. year, when it cut back
Teraco senior product development engi- on spending.
30 30 30
34 neer Andrew Owens plays down the com- The same is true of
20 20 20 pany’s ability to compete with Telkom and the mobile operators.
24 points out that telecom operators — which MTN planned to spend Arthur Goldstuck
10 16 10 17 10 still depend on Telkom’s copper network — R12bn on capital Neutral exchange frees
11 13
1 1 4 8 have to use its exchanges. expenditure in the SA from Telkom’s dominance
0 0 0 6 1
Even so, Telkom is starting to feel the current financial year.
Public Private PPP competition. It has not ignored the drop in This follows invest-
data connectivity, which it says in its results ment of R10.5bn last
SOURCE: DELOITTE AFRICA CONSTRUCTION TRENDS 2015 for the half year to end September was year.
8 Financial Mail July 1, 2016 July 1, 2016 Financial Mail 9
Financial Mail Page 10 -23/06/16 04:20:50 PM
FM SPECIAL REPORT INFRASTRUCTURE
MINING “Very soon we will see companies tie
capital allocation to strategic priorities by
Shift to strategic investing
emphasising only high-quality, long-life
assets; shifting decision-making around sus-
taining capex; or focusing more on higher-
grade brownfield exploration,” says Deloitte.
Companies might be taking a new
The local mining industry has never had it
this bad. WEAK ECONOMY BITES approach to investment but this
does not mean they will not be
After a commodities super cycle (2000- Mining sector employment and commodity prices investing at all.
2014) when demand rocketed on the back of Jobs: First quarter of 2010=100 US$ index: First quarter of 2010=100 “Expansion projects generally
an insatiable appetite from China, the sector have a long lead time to complete
has buckled under the strain of the Asian 110 130 and we are therefore investing
nation’s changing economic fortunes. 108 120 through the cycle, albeit at a lower
The SA Reserve Bank noted the scale of rate than at the height of prior
the drop-off in global demand for metals in 106 110 commodity cycles, and only in pro-
its first quarterly report when it said: “Non- 104 100 jects that meet the capital alloca-
gold mining exports to Africa and Europe in tion criteria,” Anglo American said
102 90
particular contracted sharply, declining by in a statement.
18% and 19% respectively in the fourth 100 80 Though it said that cost reduc-
quarter of the year.” 98 Employment in the mining sector 70 tions and productivity improve-
The declines in the demand for com- SA export commodity price index
ments were a priority, it pointed
modities also caused a collapse in prices and 96 60 out that there were a number of
the valuations of mining companies. Mining 2010 2011 2012 2013 2014 2015 projects either in development or
bosses are now struggling to come to terms SOURCE: RESERVE BANK QUARTERLY BULLETIN MARCH 2016 under evaluation.
with an environment that has become “The largest is the Venetia
extremely hostile. project was “under review” at ARM’s half- underground mine in Limpopo, which is a
Speaking at the recent Mining Indaba in year results, the group was also playing the life extension of the current Venetia open-
Cape Town, Anglo American CEO Mark long game. “We are absolutely bullish about cast mine. This project, the capital invest-
Cutifani, for example, pointed out that at the copper long-term. Copper is a commodity ment for which is $2bn, was originally
time, he had been in the job 33 months and that will create significant value.” approved by the board in 2012,” said Anglo
“in those 33 months, I can remember only The capital-heavy nature of mining also American.
one month where prices went up”. compounds the pressure as it means com- This approach by Anglo American is in
Cutifani said the scale of the downturn panies have to continually invest, regardless keeping with Deloitte’s advice.
could be seen in the global mining sector of the state of the market. “Just as, during the super cycle, people
losing US$1.4 trillion of its value since the Gold Fields increased capital expenditure imagined prices would go up forever, people
beginning of 2013, which was “more than by 8%, from R243m to R262m only because now imagine the market will
the combined value of Apple, Exxon Mobil of higher spending on its fleet and the never recover.
and Google”. upgrading of a shaft, for the quarter to Neither extreme repre-
When it decides where to invest, the sec- end-March 2016. This is maintenance sents the truth,” says
tor is in a bind. It has to plan major projects rather than spending on new infras- Philip Hopwood,
years ahead, but still needs to take into tructure. Deloitte’s global mining
account the low price environment and A Deloitte report tracking trends in leader. “What is true,
weak global economy. the mining industry said the pressures however, is that our cycle
The pressure on the industry can be seen on companies would force them to times are lengthening.
with African Rainbow Minerals (ARM). Its shift away from allocating capital in a That means it could take
Lubambe copper mine in Zambia cost it fragmented manner, which makes it dif- years to adjust to current
R1.4bn in impairments. And though its exec- ficult to link capital spends to expected market forces — but it’s still a
utive chairman Patrice Motsepe said the financial returns. cycle.” Larry Claasen
‘‘
WE ARE BULLISH ABOUT COPPER
LONG-TERM. COPPER IS A
COMMODITY THAT WILL CREATE
SIGNIFICANT VALUE
© Business Day
PATRICE MOTSEPE
10 Financial Mail July 1, 2016
Financial Mail Page 11 -23/06/16 04:21:49 PM
FM On My Mind
Ryan Ravens
Get the house in order
As partners, business requires government to start appreciating
the value of every rand
P
ublic private partnerships (PPPs) any of the infrastructure projects past few months, following gov-
so integral to the success of the ernment’s commitment to
have been touted as the solution NDP. reducing state expenditure, has
to SA’s onerous infrastructure This is where the private sec- been the relentless requests by
development needs. However, tor needs to step in. government departments and
Around the boardroom table agencies for private sector fund-
the traditional PPP model has and behind closed doors, busi- ing of government-led projects.
had only minimal success. PPPs can take ness leaders have affirmed their Rather than fully appreciating
commitment to the NDP. Count- what these budget reductions
years to complete, and are extremely cum- less strategies have been con- require in terms of efficiency
bersome. A typical PPP has no less than six ceived which demonstrate the and smarter implementation,
business case for private invest- the tendency has been to arro-
phases with approval gates at each stage. ment in public infrastructure. gantly forge ahead with precon-
The long-term risk nature of ceived projects at the same cost,
Added to this is the likelihood priorities: avert a credit rating PPPs is, however, a concern for while pressuring business to
that its investors could be for- downgrade; accelerate growth of investors. A stable regulatory fund the budgetary shortfall.
eign companies who may need small business as a catalyst for and political environment is This is not partnership. It is
to adhere to empowerment job creation; and develop invest- non-negotiable when making exploitation, and it will not find
requirements and fulfil obliga- ment projects in key sectors. long-term investments (often favour among business leaders.
tions such as establishing a local All will require collaboration typified by low rates of return). All spheres of government
presence. At times one would be between business, government In addition, government will need to take a hard look at how
forgiven for thinking that suc- and labour to demonstrate to the need more than financial sup- they conduct their affairs. As
cessfully completed PPPs are investment community that SA port to avoid a ratings down- partners, we require government
nothing short of miraculous. remains a viable and attractive grade. It must be willing to allow to appreciate the value of every
As we enter a new era of investment opportunity. private sector influence over rand. The corporate sector
government and business col- These initiatives are intended state-owned enterprises (SOEs) requires a compelling business
laboration — fuelled by a desire to assist in the implementation to improve their efficiency and case for every investment. The
to redress the recent damage of the National Development reduce their drain on the fiscus. private sector is, and always
caused to our economy by poor Plan (NDP). But the NDP, like Government’s willingness to should be, driven by profit.
political leadership — discussion most of government’s long-term take guidance from business Government must appreciate
has centred on the need for the growth strategies, was drafted at leaders remains to be seen as the fact that there are countless
private sector to partner govern- a time when most of us expect- such intervention will inevitably competing investment opportu-
ment to develop an inclusive ed GDP growth of 3%–6%. lead to a severe tightening of the nities, and should start working
economy. We face the dire prospect of fiscal belt. It would dismantle harder to create a stable envi-
The initial, highly publicised GDP growing by less than 1%, the culture of graft and tender- ronment favourable to investors.
talks between business and gov- which leads us to ask whether preneurship within SOEs. Ravens is CEO of Accelerate Cape
ernment have identified three the state is able to implement An alarming trend over the Town
July 1, 2016 Financial Mail 11
Financial Mail Page 12-13 -23/06/16 04:33:28 PM
FM CORPORATE REPORT DBSA
DEVELOPMENT FUNDING “Though significant progress has been
made, the extent of the backlogs remain
viable and meet the needs of the affected
communities. This also calls for collabora-
requisite capacity for post-implementation
project management, operation and main-
substantial, hence this key sector remains tion between key role players such as the tenance.
Staying the course core to the DBSA focus and strategy. We are
therefore continuously seeking to leverage
our partnerships, skills base and capital to
maximise the impact of our own limited
resources,” Dlamini says.
“Among a number of initiatives in this
Housing Development Agency, the Govern-
ment Technical Assistance Centre in nation-
al treasury, the Municipal Infrastructure
Support Agent and various provincial gov-
ernments.
“In terms of the capacity provided to
“Hence, skills transfer is an essential part
of our capacity building approach. This sup-
port happens mainly at municipal level and
the direct role players at the affected local
authorities are always incorporated into the
process to achieve buy-in, ownership and
Taking a holistic view to funding has made WHAT IT “A key focus for us will regard we are looking, for example, to com- municipalities in need, specifically with the necessary skills transfer.”
the DBSA SA’s key infrastructure facilitator MEANS therefore be the extent to
which we will be able to
bine our project preparation, financing and
implementation offering in an end-to-end,
regards to planning and implementation
support, the bank has some direct influence
Though the DBSA may occupy that seat
at the development agenda, it also has to be
R6.8BN COMMITTED catalyse additional invest-
ment into infrastructure
integrated solution to address the consid-
erable challenges in this space.”
in steering delivery standards in the desired
direction,” Dlamini says.
looking back to ensure that funding and
activities have the desired, long-term results.
TO SERVICE
F
development. Through Recognising that simply directing money “The other way would be through terms It is therefore in the process of reviewing
ew institutions occupy a seat as opment and institutional capacity building, DELIVERY blended finance struc- at these challenges is not a sustainable strat- and conditions imposed through various and revising its development results mon-
close to the front of the country’s the bank has ramped up its activities over PROJECTS tures, for instance, we aim egy, the bank’s value chain approach aims to agreements, ranging from loan agreements itoring, evaluation and reporting systems in
development agenda as the Devel- the past three years to consistently achieve to crowd in private cap- mitigate the risk of throwing good money to grant agreements governing the use of order to ensure it remains aligned with
opment Bank of Southern Africa record disbursements. SA’S CRITICAL ital, thus increasing the after bad. This is particularly true in under- technical assistance provided as part of our international best practice.
(DBSA). With record disbursements in the The importance of its role cannot be INFRASTRUCTURE pool of funding for devel- resourced municipalities that often lack the planning and support operations. Having made significant strides since its
2014/15 financial year totalling R13bn and
total assets of R71bn, that front row seat is
underestimated and is measured in the
development of critical infrastructure that in
GETS A BOOST opment finance.”
This next phase in the
capacity to plan and prepare infrastructure
projects.
“The DBSA recognises the importance of
redressing capacity gaps, not only as an
reorganisation, the trick now will be to
maintain the momentum and continue to
not an insignificant one. the past financial year alone delivered 15 evolution of the DBSA fol- The DBSA’s project preparation and imperative to reducing dependency on pro- deliver projects and infrastructure designed
Mandated to promote economic devel- schools, 1,128 rural houses and 60 doctors’ lows its restructuring and refocusing that infrastructure delivery divisions therefore ject planning and implementation support to build a better life for all. ■
opment and growth, human resource devel- rooms and the refurbishment of 26 clinics. resulted in it taking a more holistic view to play a critical role to ensure projects are in the long run, but also to ensure the Sponsored by DBSA
In the short term, it has also infrastructure development by addressing
committed R6.8bn to the municipal the entire value chain rather than a narrow
sector that is expected to benefit
more than 289,000 households
focus on funding and financing.
Dlamini explains that this approach has
PROJECTS UNIT from the Infrastructure Investment Pro-
gramme for SA (IIPSA) which is designed to
around the country. enabled it to ensure that projects are pre- support the implementation of the National
DBSA CEO Patrick Dlamini
ascribes the phenomenal growth in
disbursements — with the target for
pared and bankable by the time financing is
sought, thereby avoiding delays that could
result in substantial cost escalations and
Unlocking investment Development Plan as
well as the Regional
Infrastructure Devel-
2016 increasing to R17bn — to the potentially lead to projects being only par- opment Master Plan
reorganisation of the state develop- tially funded. With a strong pipeline of projects being pre- is therefore the very first step in that value of SADC. This fund
ment finance institution in 2013. Its new view across the development val- pared for implementation and completion chain which engages with clients to assess was established with
Jeremy Glyn
“In future, our emphasis will be ue chain has the added advantage that the within the next three months to three years, and prepare their applications for financing. the assistance of the
more on the total impact of the bank can apply its project preparation the DBSA’s Project Preparation Unit (PPU) is Factors that the PPU specialists need to European Union (EU)
bank,” he says. “This is measured expertise to projects funded through fiscal central to the state’s development finance consider when assessing projects include the that has committed
not only by our direct loan dis- transfers, thereby extending its impact institution meeting its mandate. developmental impact and sustainability; €100m for these pro-
bursements, but also the extent to beyond the confines of its own financing Comprising professionals with financing financial viability; strategic fit in the DBSA’s jects, and is adminis-
which we are able to crowd in pri- resources. and investment expertise within the built mandate and objectives; technical, commer- tered by the DBSA.
vate capital into infrastructure “Outside of the municipal sphere it environment, this unit’s role is that of a cial and institutional risks; and the quality
development through a catalytic allows us to remove a key impediment to catalyst to ensure speedy, effective infra- and reputation of project sponsors.
role. development, namely a lack of preparation structure development. Once these initial requirements have
“The aim remains to increase our capacity that often curtails the rollout of PPU general manager Mohale Rakgate been satisfied and verified, the unit turns to
annual disbursements on a sustain- otherwise bankable infrastructure,” he says. says the creation of this unit following the financing questions such as the project
able basis. However, as a develop- This level of progress is critical to SA DBSA’s reorganisation in 2013 has been val- structuring and exit mechanism. Mohale Rakgate
ment finance institution a big part addressing developmental backlogs that are idated by the considerable impact it has had The scope of projects it is keen to pursue Unit facilitates projects
of our strategy is to expand our causing increasing dissatisfaction in cities on the outcome of projects since then. include programmatic initiatives within
impact beyond what our balance and towns across the country. Municipal “In many ways we are responsible for local government (municipalities); the Inde-
quicker than before
sheet and gearing constraints can infrastructure, therefore, is a key focus area. unlocking investment opportunities for the pendent Power Producer programme; ICT
sustain,” he says. So much so that nearly half of disburse- bank by getting involved prior to project infrastructure projects; student accommo-
‘‘
ments in 2014/15 were directed funding to get these projects to a bankability dation and regional integration initiatives.
at this sector. stage,” he says. Funding for this comes from various
Dlamini says that over the The success of the PPU in achieving its sources, with the success rate of even mega
past three years, infrastructure mandate is reflected in the DBSA’s improved projects easily offsetting the investment
development support has been performance, which led to it approving needed for pre-feasibility studies. Rakgate
provided to 87 underresourced finance for projects valued at R30.2bn (2014: says these costs are, on average, between 3%
THE AIM REMAINS TO INCREASE municipalities, including 11 dis- R14bn), committing R17.4bn (2014:R12.2bn) and 5% of the overall project cost.
OUR ANNUAL DISBURSEMENTS ON A
trict municipalities. This has and disbursing R13bn (2014: R12.7bn) in the The one direct source that PPU draws on
resulted in thousands of house- 2014/15 financial year. for its work is the DBSA’s own funding
SUSTAINABLE BASIS holds receiving access to water,
sanitation and electricity ser-
The creation of the PPU is in line with
the DBSA’s strategy of adopting a value
which is available for projects in the trans-
port, energy, ICT and water & sanitation
PATRICK DLAMINI vices. chain approach to project finance. The unit sectors. It then also has access to funding
12 Financial Mail July 1, 2016 July 1, 2016 Financial Mail 13Financial Mail Page 14-15 -23/06/16 04:22:32 PM
FM CORPORATE REPORT DBSA
Such is the need for financing of this to receive support. An example of this is the On the role of the PPU, DBSA CEO such maintenance programmes, the IDD is older community members with experience acting as the intermediary,” Sibisi says.
nature, that 250 applications with an esti- DBSA’s support of renewable energy projects Patrick Dlamini says: “A key focus in the hoping to instil a culture of ongoing care in the built environment to run mainte- Areas of such co-operation that show
mated value of R90bn were received in the participating in the Renewable Energy Inde- year ahead will be on continuing to develop that will help institutions to achieve savings nance programmes. promise include technology innovation,
first round of requests for proposals. Of pendent Power Producer Procurement pro- the project preparation skills urgently that could then be applied to delivering core The successful implementation of inter- innovative building technologies, the main-
these applications, 27 projects were accepted gramme (REIPP), with R6.4bn approved for required to progress projects from concept health-care services. ventions that include mentoring and coach- streaming of solar solutions, and identifying
into the IIPSA pipeline. funding in 2014/2015. to bankability. By so doing, more projects This philosophy of adopting a long-term ing will be extended to other provinces solutions for water treatment works.
Lastly, the bank is also the implementing PPU is working with more than 40 pro- will be moved to the stage at which poten- view on effective infrastructure delivery is through a pilot programme within the com- The IDD’s influence is also felt outside SA,
agent, fund manager and secretariat of the jects that are at various stages of devel- tial funders will consider lending to them. behind the IDD’s overarching theme of ener- ing months. The potential to broaden the with the division rolling out programmes in
SADC Project Preparation & Development opment. These have provided it with a “We plan to cultivate these skills (includ- gy efficiency. This approach is founded on scope of this concept will also be trialled at neighbouring and SADC countries.
Facility (PPDF). This is also supported by the strong pipeline of projects that will soon ing those necessary for scoping, pre-fea- lowering costs while reducing environmental water treatment works by training artisans Sibisi says the efficient delivery of water
EU, and KfW Development Bank of Ger- qualify for funding. sibility and feasibility work) with other impact by the public sector. This is being to operate these facilities. is one of the key focus areas, given the
many looks to support projects in the trans- In the 2014/2015 financial year, it invested development finance institutions (DFIs), to pursued in conjunction with the department The IDD’s focus on facilitating service region’s scarce water resources. This
port, energy, ICT, water & sanitation and little more than R6m of its own funds in develop a strong pipeline of projects for not of public works and includes updating the delivery is not restricted to state entities or becomes particularly troublesome where
tourism sectors. project preparation work, down from almost only the DBSA and other DFIs to fund, but green building guidelines and how green government institutions, with the division water sources cross borders and the lack of
Despite the broader focus on SADC R21m the previous year, while leveraging where appropriate to crowd-in private sec- finance can be leveraged to start greening having worked with private enterprises such capacity or funding in one country may
through these funds, nearly 70% of the unit’s R396m from third party funders. tor funders through syndication.” government facilities over the long term. as mining groups to help them achieve sus- affect a neighbour’s ability to provide access
work is conducted on home-grown projects, “The reason for this decline is that the Given the tremendous infrastructure “We believe there are pockets of best tainable impact. Given the mining compa- to water for its own communities.
with 20% accounting for projects in SADC DBSA has managed to secure R396m (up deficit with SA and in the region, there is no practice in the country,” Sibisi says. “It is nies’ commitments to working with local “Next to energy, water is a critical issue
and 10% the rest of the continent. from R197m in 2014) from our partners such shortage of work for the PPU to consider. really about how we identify them and scale communities, they are a natural fit for the from a development point of view. The idea
And while the majority of projects han- as the IIPSA, SADC PPDF and others,” says The DBSA has committed to increasing that up so they have a larger impact.” IDD as these projects can be beneficial for behind the SADC water programme is to
dled by the unit are in the public sector, it is Rakgate. “We always look at the nature of the unit’s catalytic role and has allocated Examples of how her division has imple- service delivery if implemented correctly. encourage cross-border interventions and
not restricted to this sphere. Where private the project and evaluate the best way to R100m for the current financial year from mented this vision of scaling up solutions Taking this concept one step further, the bring together the two relevant countries
sector ventures involve projects that have a finance the project preparation work, and if its own resources to fund project prepa- include work done with the Eastern Cape IDD is looking to broaden its influence with the support of external funding to
direct impact on improving infrastructure we can raise that from third parties, we will ration activities. ■ department of education to build skills and through public-private partnerships. enable access to water on the continent,”
and services to civil society, they are likely utilise that first.” Sponsored by DBSA capacity within local communities to ensure “As a government entity we are part of says Sibisi. “We have been working on a
that new or refurbished infrastructure is the broader state family, so we drive public- number of feasibility studies and are now
maintained. Young members of the com- to-public partnerships first and that then rolling out that programme across SADC.” ■
IDD munity, for example, are partnered with enables public-private partnerships, with us Sponsored by DBSA
Accelerating delivery IDD SERVICES public facilities and create employment
opportunities for the youth on an ongoing
basis.
Development banks, by their very nature,
occupy a space that is considerably different
the next financial year.
Sibisi says that the division’s revenue is
Delivery at work ❑ Human settlements:
Human settlements is one of the key
focus areas for the DBSA given the enor-
T
from commercial finance institutions. For generated from clients — primarily in the mous backlog in providing SA citizens with
the Development Bank of Southern Africa public sector — and that it receives no fund- he Development Bank of SA (DBSA) groundwork to prepare the country’s clin- decent, affordable housing.
(DBSA) this differentiation is all the more ing or income from the DBSA. She adds that Infrastructure Delivery Division ics for the full-scale rollout of the National The bank has therefore been involved in
evident in its Infrastructure Delivery Divi- the IDD’s staff complement of 115 should (IDD) has quietly been playing a piv- Health Insurance (NHI) system and infra- numerous projects around the country to
sion (IDD). grow to 185 by the end of 2016, and even- otal role in the establishment of critical structure. address this challenge.
Effectively a project management practice, tually to as many as 300. infrastructure focused on education, health In 2014/15, for example, it was instru- In the Eastern Cape, for instance, it was
the IDD has built up a team of experts to help These professionals will certainly be and human settlements. mental in the construction and fitting of 60 mandated by the provincial department of
conceptualise, prioritise and supervise infras- needed to help the unit achieve its aim of ❑ Education: doctors’ consulting rooms at clinics that fall human settlements to act as an implement-
tructure projects across the country. contributing across the entire infrastructure Partnering the national department of within the designated NHI pilot districts. ing agent for the Elliotdale Rural Sustain-
“We recognised that we were not going to delivery value chain. education as its implementing agent, the This forms part of a R218m project to deliv- able Human Settlements Pilot Project.
be able to solve the problems in SA or the “One of our key focus areas is on delivery division has been central to the Accelerated er 102 consulting rooms. This project is part of the Enhanced Peo-
rest of the continent through finance solu- innovation and technological innovation,” Sinazo Sibisi Schools Infrastructure Delivery Initiative The IDD helped source and supply the ple’s Housing Process — which actively
tions alone,” says IDD group executive man- she says. “So what we are working on with Innovative solutions (ASIDI) that has delivered 64 new schools medical equipment and furniture and pro- involves beneficiaries in the decision-mak-
ager Sinazo Sibisi. “Those problems are often clients is to say to what extent can we adopt to delivery practices since the programme’s inception. In the moted the use of alternative building tech- ing process over housing — and makes a
institutional, related to infrastructure plan- programmatic approaches to delivery 2015 school year, 9,162 pupils enrolled at nologies that were less costly and quicker contribution towards the building of their
ning itself, so we assess whether we’re through asset optimisation, for instance.” these new schools. to erect than traditional methods. own homes. In total, the Elliotdale project
choosing the right projects and prioritising She cites the example of a recent fast- In 2014/15 alone, 15 new schools were Allied to this programme, the IDD was delivered 1,000 houses to the community in
them to get the developmental outcomes tracked project for the Limpopo department completed, with another 48 at various appointed in 2014 to carry out the minor rural Eastern Cape.
that we need. And we are able to package of health that reviewed mechanical and stages of completion, and a further nine at refurbishment and maintenance of facilities The project also presented the oppor-
those projects to get value for money.” electrical equipment in the province’s major procurement or foundation stages. at 94 clinics in the NHI districts across the tunity to use this as a pilot programme for
By taking a step outside of the pure hospitals. After evaluating the essential Apart from the direct benefit to the country. providing an innovative development solu-
financial considerations that the bank has equipment that’s critical to the ability of country’s youth with education facilities, Again demonstrating the catalytic role it tion in an area of delivery that has been
traditionally had to make, the IDD has those hospitals to function, such as chillers; 9,915 employment opportunities have been plays beyond physical infrastructure deliv- subject to numerous failures.
carved out a specific niche for itself that has boilers; laundry systems and generators; created under this programme since 2013, ery, the IDD was able to link artisans to Following the successful completion of
helped to accelerate projects and ensure these were replaced or refurbished. of some hospitals had been waiting for their with R170m out of R1.2bn in expenditure contractors to gain first-hand work expe- the project, the department allocated a fur-
they meet urgent infrastructure needs. “If you start sorting out those things, previous implementing agents to deliver allocated to 734 SMMEs. rience. ther 4,000 units to the DBSA to complete
The success of this approach is measured you’re able to have a major impact on the generators for five years, and the DBSA was ❑ Health care: This is a model that it intends extending over the next two years. ■
in the IDD’s R3.3bn funds under manage- quality of health care in those hospitals,” able to get them in five weeks.” The IDD has been behind much of the to help provide essential maintenance of Sponsored by DBSA
ment and we aim to grow this to R4.5bn in Sibisi says. “We had situations where CEOs By demonstrating the positive impact of
14 Financial Mail July 1, 2016 July 1, 2016 Financial Mail 15You can also read
