South Africa is planning to launch a credit-guarantee facility aimed at encouraging private sector investment in the country’s ambitious infrastructure projects. This initiative is designed to lessen the reliance on public funds for these critical developments.
Deputy Finance Minister David Masondo discussed the plan in an interview in London. “We are looking to manage levels of risk associated with projects or project sponsors in attracting private sector financing,” Masondo explained. “The Credit Guarantee Vehicle looks to crowd in private sector capital for strategic infrastructure projects.”
Masondo is part of a South African delegation currently in the UK, meeting with investors. The delegation is working to reassure them that South Africa will remain committed to fiscal consolidation. This commitment aims to maintain the increased investor confidence that has led to a recent positive trend for the rand.
President Cyril Ramaphosa stated in March that a substantial investment is required to achieve the country’s infrastructure objectives by 2030. This includes approximately 1.6 trillion rand ($91 billion) from the public sector, along with an additional 3.2 trillion rand from the private sector. Finance Minister Enoch Godongwana will focus on the infrastructure strategy during his medium-term budget statement on October 30th. The government intends to upgrade the nation’s ports, railways, and roads. These improvements are intended to revitalize economic activity. The goal is to achieve 2% growth in 2025 and beyond, after a decade of growth at a rate less than half that.
The Credit Guarantee Vehicle (CGV) “will provide credit enhancement in the form of credit guarantees or insurance products to cover risks that the private sector is not prepared to take,” said Masondo. He clarified that the facility will support specific projects, not entire companies, and will not function as a direct funding platform.
South Africa is collaborating with the International Finance Corp., the private-sector lending branch of the World Bank, on this guarantee initiative. Eskom Holdings SOC Ltd. will pilot the program as it significantly expands the national grid over the next decade, Masondo informed investors this week.
The state-owned utility plans to invest nearly 400 billion rand over ten years. The investment is for constructing more than 14,000 kilometers of power lines. The goal is to address rolling power cuts and incorporate more renewable energy sources into their network.
Electricity Minister Kgosientsho Ramokgopa mentioned that the government is exploring credit-enhancing instruments that don’t require direct sovereign guarantees. No further details were given.
While investors have responded positively to the control of public finances, Goldman Sachs Group Inc. economist Andrew Matheny cautioned against excessive cuts, while noting that the increase in public capital expenditure so far has been “pretty disappointing.”
“Spending cuts on the social side have been so across the board that you’re reaching the point where you really are harming service delivery,” Matheny said.
Masondo didn’t exclude further spending cuts but emphasized that protecting front-line services like healthcare, transport, and education is a priority. “Given the fiscal constraints, there has to be trade-offs,” he stated. “We have to abandon certain spending programs that are not our priority.”
— With assistance from Paul Burkhardt.
