South Africa Targets Infrastructure Deals With Guarantee Fund

South Africa's plan to roll out a 14,000-kilometer expansion of its national power grid will cost about 440 billion rand. Photo by Waldo Swiegers /Photographer: Waldo Swiegers/Blo

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(Bloomberg) — South Africa plans to rapidly expand a new credit-guarantee vehicle to support billions of dollars in infrastructure projects, from power-grid expansion and water systems to ports and freight rail.

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The program — a first for the country — is designed to mobilize private capital while limiting pressure on the state, which has previously been forced to extend sovereign guarantees to scandal-hit state companies. Those contingent liabilities currently amount to about 661 billion rand ($40 billion).

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“It’s going to be a big injection in a very short time,” said Mpho Mokwele, group executive for coverage and origination at the Development Bank of Southern Africa, which will oversee the program. “We now have the fiscal headspace to issue further guarantees to support our infrastructure projects and programs.”

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President Cyril Ramaphosa’s government plans to ramp up infrastructure investment in Africa’s biggest economy, budgeting 1.07 trillion rand over the next three fiscal years. The credit-guarantee vehicle will complement the president’s push. It is expected to mobilize up to four times its initial $500 million in capital, with the multiplier rising as it secures credit ratings and gains market acceptance, according to Mokwele.

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The fund has already secured $350 million from the World Bank’s International Bank for Reconstruction and Development. The African Development Bank, International Finance Corp., Germany’s KfW and South Africa’s Industrial Development Corp. have expressed interest in contributing, Mokwele said. 

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A local commercial bank has also signaled interest, though Mokwele declined to name it before a final agreement is reached.

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“When one of them comes into the mix others do follow,” he said of the commercial banks. “It’s just about signaling, sending a positive signal to the market that they’re keen on participating and supporting government’s efforts of unlocking infrastructure.”

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The National Treasury is also planning to contribute funds and will take up as much as 20% of equity in the vehicle. South African state companies, including the DBSA, may boost that to 30%.

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South Africa’s planned expansion of the national grid by 14,000 kilometers (8,699 miles) to tap some of the world’s best renewable energy potential in the western half of the country is expected to cost 440 billion rand alone, while improving ports and freight- rail lines will cost another 330 billion rand.

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“The first program that we are looking at unlocking is the independent transmission program,” Mokwele said.  “It’s actually meant for the infrastructure projects and programs holistically,” which would even include hospitals and student accommodation, he said. 

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The Trans-Caledon Tunnel Authority, in charge of some of South Africa’s biggest bulk-water provision projects, is also expected to benefit, he said. The DBSA will also run a public-sector participation unit to attract investment into South African logistics, Mokwele added.

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