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Fresh Capital

11th November 2011

By: Terence Creamer
Creamer Media Editor

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It has emerged that South Africa is interrogating the possibility of establishing ‘special funding vehicles’ to channel private-sector resources into programmes designed to revitalise and expand the country’s railway network, as well as other public infrastructure.

The champion of this initiative is Public Enterprises Minister Malusi Gigaba, who indicated last week that he planned to have a series of engagements with rail customers, as well as with the banks, pension funds and development finance institutions (DFIs) to discuss ways of releasing additional resources for infrastructure developments.

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He said the country and the region needed to raise infrastructure investments to 10% of gross domestic product (GDP) on a sustained basis to stimulate economic growth and development.

Notwithstanding South Africa’s large public infrastructure commitments, investments of R233-billion during 2011/12, primarily by Eskom and Transnet, would equate to only 7.8% of GDP. This was insufficient for ensuring an expansion of infrastructure, with the bulk of the State-owned enterprise investments being directed towards maintenance and rehabilitation programmes.

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“In accelerating the rate of investment in our freight rail system, we have given Transnet a clear instruction to start planning, based on what the country requires to unlock growth, rather than what the Transnet balance sheet can afford,” Gigaba explained. Transnet was currenlty planning to invest R110-billion over five years into rail, ports and pipelines.

To fund this envisaged expanded infrastructure roll-out, government had already initiated a process with domestic DFIs, such as the Development Bank of Southern Africa and the Industrial Development Corporation, to “see how we can leverage their balance sheets”.

“In addition, over the coming months, we will be engaging with our big customers, banks and pension funds to see how we can expand the pool of available capital. We are also exploring the possibility of structuring special funding vehicles to channel funding from these different sources into specific strategic logistics projects,” Gigaba outlined.

There would also be a focus on using the investment programmes to help build national rail, industrial and technological capabilities.

The economies of scale would be provided through Transnet and the Passenger Rail Agency of South Africa pursuing fleet procurement models in the way they procured new rolling stock.

“In exchange, we would expect that the winning original-equipment manufacturers partner South Africa to build a global and regional rail technology and manufacturing hub in our own country.”

Government would also explore the development of a specialised locomotive, customised for African conditions that could be manufactured in South Africa.

“We would like to mobilise all relevant stakeholders, including our supplier communities, universities and other training and research institutes and development finance institutions to participate in this programme,” he said, adding that the industrial capabilities developed for the rail procurement could also be deployed in the mining, chemicals and energy equipment sectors.

This fits in with the Department of Trade and Industry’s plan to designate railway rolling stock as among the first products that should be procured from domestic sources under the new preferential procurement regulations, which come into effect on December 7.

The regulations provide for the specific designation of sectors and products that should be procured locally by government departments, provincial and municipal governments, as well as by State-owned companies and agencies.

Besides railway rolling stock, the other initial designations would cover the public procurement of buses, power pylons, some key pharmaceuticals, set-top boxes, clothing, textiles and leather footwear as well as certain food and canning products.

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