Placing private equity providers firmly in its strategic crosshairs, Gauteng Premier David Makhura continued to reiterate his province’s intention to partner “meaningfully” with the private sector, telling the inaugural Gauteng Infrastructure Investment Conference, in Midrand, that the private sector remained the mainstay of fixed investment in the Gauteng economy, currently accounting for 80% of gross fixed capital formation.

“My interaction with business leaders over the past 12 months – and I have met [many] business leaders – gives me the confidence that many businesspeople are tired of complaining about what is wrong in our country.

“Public–private partnerships (PPP) are the only way to survive. The [bulk of] investable capital is in the hands of the private sector and it is, therefore, important to work closely with business leaders to unlock this capital and direct it towards improving the infrastructure for the common good,” he noted in a keynote address on Thursday.

Gauteng’s 25-year Integrated Infrastructure Master Plan stated that the province required over R105-billion a year in infrastructure investment from both the public and private sectors, with energy, transport and water-related infrastructure comprising 74% of the investment required.

Just over half of the required funding was required for infrastructure renewal, while 6% had been budgeted for infrastructure backlogs and the remainder for investment in new technology and to remedy skills shortages and “institutional misalignment”.

“We have identified investment in infrastructure, the maintenance of existing infrastructure and building of new infrastructure as the lifeblood of our social and economic transformation agenda.  

“Building meaningful and transformative partnerships with the private sector is, therefore, not a luxury,” he told delegates at the conference.

Private sector support for Makhura’s comments emerged from JSE CEO Nicky Newton-Smith and Banking Association of South Africa MD Cas Coovadia, both of whom reiterated the need for sustained collaboration between the provincial government and the holders of private funding that was supported by predictable policy and legislation.

Noting that the private equity market and locally listed companies wished “to be a part of the solution”, Newton-Smith told delegates that an intrinsic function of the local bourse was to unite the holders of capital with those seeking investment, and it was thus critically positioned to facilitate private sector investment in the provincial government’s ambitious infrastructure plans.

“Doors need to be open [to allow] business to find innovative ways to respond to the TMR [Transformation, Modernisation and Reindustrialisation] plan . . . we have [good] institutional leadership . . . we have stuff to contribute and we know how to do things.

“We believe our platforms at the JSE can be well used to raise capital both in PPP and in separate private vehicles aimed at delivering aspects of the plan . . . and there are already examples of this in practise,” she said.

More outspoken in his praise of Makhura, Coovadia lauded the leadership provided by the Premier, describing him as a government leader that understood the necessity of PPPs in the pursuit of the province’s developmental goals.

“We are here because we have a Premier that understands that partnerships are important and that we need to collaborate to ensure sustained growth that actually improves the socioeconomic situation in the province.

“The Premier’s leadership has ensured a relationship with the private sector that will be beneficial not only to business and government but to the broader population. My hat goes off to you,” he commented.

Noting that business needed transparency, consistency and ease of process to promote investment in the province, he cited the Department of Energy’s Renewable Energy Independent Power Producer Procurement Programme as an example of a successful PPP upon which future partnerships could be modelled.

AFRICAN DARLING
Citing a 2014 survey by professional services firm EY, Makhura noted that Gauteng remained the most popular destination of foreign direct investment projects in Africa.

“We are a gateway to Africa, but we know that we will lose this position if we sleep. We need to mobilise more resources across the private and public sector in order to enhance social wellbeing and expand economic opportunities to all,” he appealed.

Makhura further described Gauteng as South Africa’s “economic powerhouse” and the industrial hub of the Southern African Development Community region, contributing 36% to South Africa’s gross domestic product (GDP), 40% to total industrial output, 60% of exports and almost 10% to the GDP of the entire African continent.

However, according to the South African Reserve Bank, the country’s existing economic infrastructure capped the national economy’s potential for growth at around 3.5% a year.

“This is insufficient, if we are to adequately address unemployment, inequality and widespread poverty,” he said.

Meanwhile, the overarching National Development Plan (NDP) put required gross fixed capital formation at about 30% of GDP by 2030, with public sector investment required to grow at about 10% of GDP to achieve the NDP’s desired developmental outcomes.

“The vigorous focus on infrastructure development at a national level has seen the public sector contribution steadily growing to 7% of GDP . . . [which proves that] the more investment we make in our infrastructure the better we become,” Makhura averred.

Revealing the scale of private sector investment opportunities available within the province’s development plans, he outlined that, over the next four years and together with national government, the Gauteng provincial government and municipalities planned to spend more than R100-billion on infrastructure projects in the five development corridors of the Gauteng City region.

This would entail rolling out public transport infrastructure and broadband infrastructure connectivity, broadening the energy mix, building mega human settlements and new cities; fast-tracking the development of the aerotropolis and new logistics nodes; revitalising old townships, mining towns and inner-cities; and expanding social, water and sanitation infrastructure.

INCENTIVISED INVESTMENT
Makhura, meanwhile, referenced several packages of State incentives available to encourage private-sector investment and propel industrialisation and reindustralisation.

Among these was the Municipal Infrastructure Grant, which could be accessed by municipalities to fund critical social and economic infrastructure projects.

“Municipalities, especially the metropolitans, also offer incentives in terms of reduced rates and taxes, as well as payment holidays on rates and tax rebates for a fixed period of time,” he said.

Moreover, the Department of Trade and Industry’s (DTI’s) infrastructure-related incentives included the Infrastructure Programme, which rebated up to 30% of the cost of the infrastructure investment during the building of roads and railways, as well as the laying out of pipelines and transmission lines.

The DTI also administered the Manufacturing Investment Programme, which incentivised manufacturing firms to establish local capital infrastructure projects and facilities.

The South African Revenue Service, meanwhile, made provision for depreciation and building construction allowances on new or unused commercial properties.

“Provision is also made for urban development allowances which cover up to 20% of infrastructure development costs in urban areas. We also have the infrastructure development tax deductions, which provide for up to 10% rebate on the capital equipment used to lay out infrastructure investment,” Makhura noted.

Further incentivisation was provided by National Treasury under the Neighbourhood Partnership Programme, which made funds available to municipalities for purposes of upgrading underdeveloped areas and areas experiencing urban decay with a view to attracting private sector investment.