Kgalema Motlanthe Foundation

Master of Ceremonies, Ranjeni Munusamy;
Jabu Moleketi, Chairman of Harith General Partners;

Mr Sfiso Buthelezi, Deputy Minister of Finance and Chairman of the Public Investment Corporation;
Tshepo Mahloele, Chief Executive Officer of Harith General Partners;

Dr Daniel Matjila, Chief Executive Officer of the Public Investment Corporation;

Mr Tshokolo Nchocho, Chief Executive Officer of Land Bank
Tim Cohen, Editor of Business Day;
Parks Tau, Former Mayor of the City of Johannesburg
Business Leaders and Executives;
Ladies and Gentlemen,

Thank you, to the organisers, for this opportunity to engage in necessary reflection on infrastructure’s critical connection to the development of the South African economy.

A society’s commitment to unceasing progress can be measured in its allegiance to judicious self-reflection – such that it never allows itself to sink into the stagnation of self-satisfaction, nor the pitfalls of immobilisation and self-pity when faced with unremitting, multiform challenges.

As a consequence, dialogues such as the one taking place today are connected to a greater system of checks and balances that ensure that we do not take democracy for-granted. By submitting the present condition of our state to careful thought, and taking strategic action rooted in the findings thereof, we seek to improve the human condition and advance the quality of our democracy.

I speak to you today on the effects of politics on Infrastructure transformation and economic diversification.

Such a topic extends in multiple directions – requiring the exposition of conditions necessary for enhanced trade; strengthening private and public partnerships and incentives; clarifying and addressing supportive policies and regulation; and enriching regional integration and intra-African trade.

Before launching into the substantive content of my address, a rider is required, that locates infrastructure development within a broader transformation agenda.

Infrastructure’s significance within the local, continental and global contexts cannot be overstated.

It forms the architecture of a state’s economy, providing the foundation for the vital delivery of basic services to industries and households, while facilitating trade and attracting local and foreign investment across borders. In supporting socio-economic advancement; sound and well-maintained infrastructure enhances efficacy, creates employment, aids skills development, and most critically, advances the national project of inclusivity, sustainability and access.

In terms of such a national project, we are required to rethink the concept of growth, as the pursuit of infrastructure transformation and economic diversification cannot be solely framed within the accumulation of capital.

In his opening address at this year’s Competition Conference, Minister of Economic Development, Ebrahim Patel stated:

Two decades ago, economic goals in many countries were framed in the language only of rates of economic growth, with the widespread presumption that growth always, often automatically, results in wider benefits for society. The alternative view in the policy discussions focussed on development outcomes and often this was a dialogue of the deaf. Today we live in a wiser world where there is compelling evidence that strong growth has in many cases gone with deepening inequalities and social exclusion, for example of young people. Today there is a broad consensus on the need for inclusive growth’.

This perspective continues to gain global ground in contemporary discourse, as economists, business leaders and state officials are increasingly speaking of a ‘people-centred’ approach and questioning the capitalist financial system’s ability to attend to present challenges or even contribute to their creation.

In step with this trend, the World Economic Forum’s Global Competitiveness Report of 2017 identifies how rising support for ‘human-centric economic progress’ and the search for alternative models are generated by concerns over future growth and global economic challenges.

According to the report, the combination of geopolitical and technological forces is reshaping the existing order of the economy and politics. It states:

‘In many advanced economies the value of economic growth for society has come into question as a result of increasing inequality, the challenges of technological change, and the complex impacts of globalization — including those related to trade in goods, services, and data, and to the movement of people and capital…It is therefore important for countries to monitor closely the factors that determine competitiveness, while keeping an eye on the wider societal goals and related trade-offs. Ensuring future economic growth will require solutions that are more creative than any we have seen so far.’[1]

Consequently, an ever-shifting global context occasions the need to simultaneously address interconnected challenges that relate to the structure and operation of our economies, while considering the comprehensive ambit of infrastructure transformation.

Globally, the WEF measures the annual global infrastructure shortfall at $1 trillion, countered with a $4 trillion demand[2]. It would be wise to keep this in mind, as a narrowly local assessment fails to take into account the international need for economic certainty and transformation[3].

While bearing the uniqueness of our contemporary condition in mind, we are always located within a wider global community and subject to its historical and present vicissitudes.

I now turn to consider the local context.

South Africa is faced with a past that is insistently present.

Having inherited a socio-economic system designed for a portion of the population, at the expense of the majority of the country’s inhabitants, we collectively face complex matters of redress that are directly aligned with our constitution’s pursuit of a non-racial, non-sexist, free, equal and just society. The development of tangible amenities and public services, including schools, roads, hospitals and public spaces is necessitated by the promises of democracy and the parameters of the constitution.

Racially uneven ownership, lack of access to the market, economic concentration and unequal services constitute historical disadvantages that form the basis of the need for infrastructure transformation and skew the experience of citizenship.

As Minister Patel notes:

The exclusion of most historically disadvantaged South Africans from the ability and opportunity to own productive assets must be remedied to unlock the competitive and development benefits of full participation by all in the economy.[4]

The emergence of social grants, designed to ameliorate the lives of the poorest of our population was a structural imperative that now threatens to freeze poverty and not eliminate it.

The National Income Dynamics report revealed that 29% of South Africans live in severe poverty. Intergenerational mobility and the improvements of circumstance are rendered unattainable within the present system.[5]

By failing to address the structural conditions of the economy, through creating jobs, building local economies, improving education and tackling public resources, millions within our population are kept within a precarious material condition.

Such structural conditions, as Minister Patel notes:

‘Stunt economic growth, prevent entry of new players, reduce consumer choice, limit the levels of innovation and dynamism in the economy and feed a growing resentment among black South Africans of the failure to realise the promises made by the Competition Act and the vision of the constitution.

Beyond improving the movement of goods and services, advancing trade and facilitating manufacturing processes, infrastructure transformation presents us with the possibility of eliminating the cycle of poverty and inequality that blights public life.

What, then, is the current state of our infrastructure?

The diagnostic report, released as part of the National Development Plan’s agenda in June 2011, noted that the country’s ‘infrastructure is poorly located, inadequate and under-maintained’.[6] Consequently, it identified the need for ‘an efficient, competitive and responsive economic infrastructure network’[7].

The plan includes an investment call to the private sector and concentration on economic diversification that takes on regional dimensions – all to be achieved by 2030. Such diversification is critical, as we can no longer rely on the economies of the past to sustain the present, nor make manifest our vision of the future. Just seventeen years short of the plan’s intended apex, it is clear that while gains have been made, challenges endure.

Large-scale investments are therefore required, that will challenge present models of funding and partnerships.

The G20 Global Infrastructure Hub (GI Hub) report revealed an investment of R6 Trillion is necessary within the next 23 years – to address water and electricity demands and population expansion[8].

As such, our attention shifts to the conditions necessary to attract investment and access the capital required. One such condition is found in enhancing trust between various stakeholders – necessary to grow and maintain investment relationships.

Government, skills and education institutions, private sector, labour unions and communities have a collaborative role to play in development, growth and transformation.

Infrastructure is, by nature, a long-term endeavour that requires careful planning – as projects are often multi-administration in nature. It therefore necessitates partnerships built on trust, predictable rules and governance, and clear, supportive policy for sustainability

Given the reality that states lack the fiscal capacity to solely invest in required infrastructure, private capital is essential to address deficits.  Local telecommunications offers an example of an industry revolutionised by public-private partnerships.

As the NDP notes:

‘Greater use of PPP financing can contribute to better decision-making, discipline, accountability and rigor in the planning and assessment of infrastructure projects.’[9]

However, capital generally gravitates to where rules are predictable and upheld. Without trust in the rule of law underscoring these relationships, both local and foreign investors cannot be expected to invest in atmospheres of political and economic uncertainty. Our key agents of public delivery, through state-owned Companies such as Eskom, Transnet, TCTA and others, should have high governance standards.  

This reality faces many African states. In line with a human-centred approach, Africa needs to start looking at funding infrastructure that is citizen-driven, mobilising private capital to address fiscal challenges where governments cannot singularly provide specific services. With a committed leadership and good governance, and given its abundant resource in the form of its people, Africa can with the private sector turn the tide of under development.

PPP’s have a significant role to play in facilitating intra-African trade.

Various institutions and organisations exist to facilitate the relationships and foundational tenets critical to enhancing trade within the continent. However, they require an alignment of vision and comprehensive buy-in to address continental challenges.

The African Union Agenda 2063[10] was formed to consider the continent’s sustainable growth and development, premised on a pan-African ethos.

In terms of infrastructure development, it lays out a mandate for ‘world class, integrative infrastructure that criss-crosses the continent’ to be in place by 2063. This includes ‘high-speed railway networks, roads, shipping lines, sea and air transport, as well as a well-developed ICT and digital economy’, designed to catalyse skills training, research and development, investment and the tourism and manufacturing sectors, among other objectives. In terms of intra-African trade, it sets its target at an increase of 38% by 2045, while increasing global trade by 10%.

It should be noted that South Africa was given a mandate by the African Union to build the North-South Corridor, mentioned above. The successful implementation of this project would change the face of trade and infrastructure on the continent.

The question of corruption, however, looms large over such discussions – affecting both the private and public sector and dominating public discourse.

The humanist vision that once held us together under the rubric of social justice is currently strained by the individualism, greed and selfishness that go against the grain of our ideals as a people.

Systemic corruption diverts the bulk of the resources that are meant for infrastructure development and support to poor communities into private pockets, while contributing to an overwhelming wealth gap.

A recent modelling exercise by the PICC was undertaken, based on an assumption that corruption adds 10% to the cost of infrastructure. It revealed that, that level of corruption would result in an annual loss to the GDP of R27bn and the loss of 76 000 jobs.

Mapping a way forward will therefore require putting mechanisms in place to address this scourge, as well as enhancing existing checks and balances to attract and encourage investment.

What incentives, then, encourage and promote greater private infrastructure investments?

The biggest incentive for capital falls in line with traditional economics. Investors are attracted to environments where addressing demands will see meaningful returns. The rules of engagement, therefore, require frequent revisiting and clarity, while sufficient and ethical governance needs to be in place for long-term investment.

Additionally, the tax regime must be subject to consideration. Drawing an income from a decreased tax base, and offering tax breaks for long-term investment are possible measures of redress.

Consider the French example. In France, specific tax contributions pay towards a fund for education. These kinds of interventions are conceivable – but they require that we abandon out-dated modes of thinking, that have shown to be inadequate in addressing present inequalities.

Another possible intervention lies in the development of an innovative state wealth fund.

In 2006, the Public Investment Commission (PIC) planned the creation of a 25 year equity fund to address infrastructure investment across the continent[11]. While this forms South Africa’s largest fund-management initiative, there are lessons to be drawn from the Norwegian example.

Norway’s sovereign wealth fund, created by a pioneering system of taxation on the country’s oil reserves, has been a resounding success. The country’s five million inhabitants are all krone millionaires, with the fund’s reserves now passing $1 trillion, which constitutes over $190 000 for each inhabitant[12]. This is even more remarkable, considering that the country previously sustained itself on fishing, forestry and shipping before the discovery of oil in 1969.

As Paul Cleary notes:

‘Norway put in place the most robust and visionary framework for extracting maximum benefit from non-renewable resources found anywhere in the world.’

While keeping in mind South Africa’s context and uniqueness, perhaps this example offers a lesson in the kind of thinking that ought to infuse our pursuit of economic development and infrastructural transformation. Its greatest lesson, however, lies in its central concern with posterity – as the fund is preserved for future generations[13].

In closing, the current issues we face are both inherited and self-made. Our present is shaped by the peculiarities of the socio-historical and political environment from which the country evolved, intersected with contemporary actions and circumstances.

Society is built on its infrastructure – a structure that scaffolds or scuppers our vision of a socially cohesive populace.

While the legislative basis for racial discrimination has been repealed, what remains is the stark manifestation of the past history of discrimination that requires our collective and urgent address.

The exposition of systemic injustice is visible in the unequal access to infrastructure that transverses our state and further entrenches the spatial and social divisions of the past. This limits the integration of communities, by way of lack of access to basic services that infrastructure provides, and signals the critical importance of today’s discussion.

I offer a simple example, by way of illustration, as it speaks volumes about the social progress affected by infrastructural capacity.

The 22nd of May 2010 offered a symbolic historical moment.

In preparation for the FIFA World Cup, that moment that would come to signify a transient yet remarkable display of South African unity, several alterations were made to existing stadia. One of these was Orlando Stadium in Soweto: a site that had undergone a R280 million refurbishment in preparation for its use as a training facility.

When Pretoria’s beloved Blue Bulls rugby team was unable to play their semi-final match at their home stadium, Loftus Versveld,[14]Orlando Stadium proved a suitable replacement.

The notable site of struggle history became a space that momentarily brought deeply divided communities together. Through this interaction, our common humanity was witnessed in a manner that surpassed the possibilities of rhetoric.

People who had never experienced the realities of township life, given the legacy of forced spatial separation still impacting present circumstances, were brought into Soweto through the availability of requisite infrastructure. Displays of integration were notable precisely because of their absence in daily rhythms of South African society.

This exemplifies how the interconnectedness and social cohesion that forms the bedrock of post-apartheid ambition requires infrastructure to realise the policies, laws and systems that have been put in place to address the vestiges of the past.

The future is the domain of the youth – who have expressed, through various channels, how the burdens that we assumed had been relegated to the annals of history, overshadow their experience of a free, equal and just South Africa.

Our concerns with developing the infrastructure of the state and continent should primarily keep in mind the challenges and accomplishments that will be a matter of inheritance.

They should be designed to secure the future for generations to come – and repair the social bonds that have been frayed by historical forces.

Dialogues like the one occasioned today, offer the possibility of gesturing towards a different future – one shaped by more human hands and towards more inclusive ends.

Nelson Mandela once said: “We owe our children – the most vulnerable citizens in any society – a life free from violence and fear.” We owe them, too, the security of the future, rooted in human dignity, driven by the possibility of dreaming and striving for full access to every promise engendered by the attainment and arrival of democracy.

Infrastructure transformative is the foundation on which our vision for a people-centred future rests. For this reason, collaboration between all sectors is vital.

 

Thank you.

 


[1] http://www3.weforum.org/docs/GCR2017-2018/05FullReport/TheGlobalCompetitivenessReport2017%E2%80%932018.pdf

[2] https://www.weforum.org/system-initiatives/shaping-the-future-of-long-term-investing-infrastructure-and-development

[3] https://www.bloomberg.com/news/articles/2017-10-24/inequality-the-biggest-danger-for-strengthening-world-economy

[4] Patel, E., Min. 2017. Opening Address at the 2017 Competition Conference.

[5] https://www.businesslive.co.za/bd/opinion/2017-10-16-alarming-statistics–how–sas-economy-suffers-from-inequality/

[6] https://www.brandsouthafrica.com/governance/ndp/the-national-development-plan-a-vision-for-2030

[7] https://www.brandsouthafrica.com/governance/ndp/an-efficient-competitive-and-responsive-economic-infrastructure-network

[8] https://www.timeslive.co.za/sunday-times/business/2017-07-28-south-africa-under-pressure-to-invest-trillions-in-infrastructure-development/

[9] http://www.treasury.gov.za/documents/national%20budget/2017/review/Annexure%20E.pdf

[10] http://archive.au.int/assets/images/agenda2063.pdf

[11] https://www.brandsouthafrica.com/investments-immigration/economynews/infrastructure-development-in-south-africa

[12] https://www.forbes.com/sites/niallmccarthy/2017/09/22/norways-sovereign-wealth-fund-hits-1-trillion-infographic/#679164a383c9

[13] https://www.huffingtonpost.com/charles-heck/we-are-all-millionaires-n_b_4906237.html

[14] https://www.brandsouthafrica.com/people-culture/sport/sports-news/bullsinsoweto

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