SAFARI - the Progressive Business Forum website

WOMEN IN BUSINESS SUMMITcapital expenditure budget fromR110 billion over five years to R300billion over seven years, with 55% ofcapital expenditure earmarked forinvestments in new logistics capacity.Our energy investment planning isperformed through the integratedresource planning process driven bythe Department of Energy. However,we are acutely aware that Eskom isthe supplier of last resort, so we needto be extremely alert to ensuring thatadequate capacity is on hand in caseof problems in the broader energyroll-out. We also need to fund ourplanned nuclear programme, whichwill require a quantum of capitalunprecedented in our country’shistory.What is clear is that we cannotafford to allow this investmentprogramme to be affected by aneconomic slowdown. We need to belooking for ways to increase the scaleof the programme should the globaleconomy show signs of deceleratingfurther. Of paramount importance isthat we find ways of strengthening theSOC balance sheets. Strong balancesheets will decrease the price of debtfor SOCs and create a resource bufferto sustain the investment programme.More fundamentally, however, strongbalance sheets should create a highlevel of business confidence thatthe investment programmes will berolled out, regardless of a broadereconomic slowdown. This confidence iscore to re-igniting the private-sectorinvestment required to drive oureconomy both now and into the future.At the Department of PublicEnterprises, we have established anew division that will be focused ondeveloping innovative funding modelsto support and expand the investmentprogrammes. Our first port of call willbe to establish so-called ‘public/publicpartnerships’ with our developmentfinance institutions, particularly theIndustrial Development Corporationand the Development Bank ofSouthern Africa, which have theability and the appetite to take equitytyperisks that will add to the balancesheets of the SOCs, which will in turnenable us to undertake some longtermprogrammes with confidence.In addition, we need to look toour major SOC customers to providebalance sheet support for big projects,particularly when a few companiesmake up the dominant users of theinfrastructure. At a minimum, wewould expect these companies toenter into long-term take-or-payarrangements, which will enable aproject-finance-type approach to theseprojects.We also need to learn frominnovations in other countries.For example, over 30 of the majorindustrial companies in Francepurchased 20 years’ electricity supplyupfront from EDF, which gave thatutility a significant start in fundingits infrastructure programme. Thiscould be done with rail as well. I amoptimistic that we can identify somequick wins in this area.At another level, we need tounlock pension savings to fund theinvestment programme. Pensionfunds make excellent equity investors,as they tend to be concerned withthe long-term growth of the economy.Over time, I am sure that we willcreate structures for pension fundsto participate in SOC infrastructureprojects at an equity level. In theshort term, we would also like to seeinstitutional investors play their partin supporting the SOC programmes onthe bond markets. After all, the moreprogramme debt requirements fundedlocally at a reasonable cost of capital,the greater the potential for privatecompany growth.There’s a school of thought thatbelieves what we cannot fund locally,we can fund on the internationaldebt markets. Indeed, investorsentiment in developed economies atthe moment is so poor that investorsare accepting negative returns onlow-risk dollar-denominated bondissues. Yet, a recent Transnet bondissue was oversubscribed by morethan 15 times. While we clearlyneed to take advantage of this, anumber of additional factors needto be taken into consideration,including the extreme instability ofthe international capital markets,higher costs related to internationalfunding, and emerging evidencethat developing countries whohave themselves funded their owndevelopment have consistently shownmore effective economic growth thanthose overly dependent on foreigndebt. It would therefore be shortsightedto believe that we can plana sustained national investmentprogramme around consistent accessto reasonably priced foreign capital.Rather, we need to access mediumto long-term international capitalwhile we can, but cannot abdicate ournational duty to raise local resourcesto support our own infrastructureprogramme.This introduces our mostsignificant challenge. Over the lastfive years, our rate of investment hasoutstripped our savings rate by anaverage of 4–5% of gross domesticproduct. We already depend on theinternational markets to fund ourexisting current account deficit.Unless we do something to increasesavings, an expanded and acceleratedinvestment programme can only makethis gap increase, which will putthe programme at risk. Our clarioncall, therefore, is that we need tostart a national dialogue on domesticresource mobilisation to fund nationaleconomic infrastructure and, wheresensible, introduce appropriateincentives to increase the nationalsavings rate.Unlike global financial markets,South African business is not in aliquidity crisis. The private sectoris paying off their debt and notre-investing the capital in theproductive sectors of the economy.As government, we implore theprivate sector to be partners inthe implementation of our growthstrategies, so that we can eradicatesocial inequality in South Africa. Inthese globally turbulent times, theSOCs have a critical role to playin sustaining national investment,private-sector development andcompetitiveness. ✥Progressive women in business 13