South Africa’s infrastructure triumph
Under the theme “Delivering on Africa’s Promise”, the 23rd World Economic Forum (WEF) on Africa will provide an important platform for regional and global leaders from business, government and civil society to deepen the continent’s integration agenda and renew commitment to a sustainable path of growth and development.
While many infrastructure players in the west may view the continent of Africa through a shroud of mystery, South Africa has long been a lightning rod of investment and activity that has drawn developers and investors from around the world. Throughout modern history, South Africa has – in many ways – outstripped Africa’s rate of development by leaps and bounds. Since the arrival of democracy in 1995, the country has enjoyed a veritable infrastructure renaissance that has only been picking up steam over the past decade.
The energy to succeed
In part, South Africa’s success can be attributed to its well-defined infrastructure program which – in many of the most critical sectors – has laid out a clear plan for the next 30 to 40 years. In effect, the country is keenly aware of what needs to be done and how to do it. Take, for example, the country’s power and energy plan. After some high-profile power failures in 2007-2008, Eskom (the country’s public electricity utility) quickly developed a balanced plan in cooperation with industry that almost immediately ensured the country would enjoy a more reliable and secure power supply. Today, South Africa sports one of the world’s most dynamic power plans including a robust renewables program and a well-advanced nuclear initiative. The renewables program has already been through two rounds of highly-successful bidding (the first round reached financial close (mid-October) and is now entering a third phase focused largely on independent power producers (for more on this, see Power to the Independent Providers on page 24). In the next 2 years, both the Medupi Power Station and the Kusile Power Station (both dry-cooled coal fired power stations, each with capacity of 4,800 MW of power) will come online, bringing with them even greater capacity for growth and development. The long-awaited South African nuclear program is anticipated to be announced shortly, which will complete the last missing element in the overall energy plan.
Building from strong foundations
Infrastructure players are also highly attracted to the country’s relatively mature procurement process which is largely based on the UK’s public private partnerships (PPP) framework. Across multiple infrastructure sectors, PPP legislation has been tried and tested and now provides significant comfort to both domestic and foreign developers and investors, including financiers and legal parties.South Africa’s financial system has also faired rather well having been well-insulated from the global financial crisis by a strong regulatory environment and somewhat tight foreign exchange controls. As a result, South Africa’s banks enjoy greater liquidity than most others around the world and are therefore able to fund most – if not all – of the current infrastructure projects now on the table.
Infrastructure will be one of KPMG Africa’s key focus categories in the lead up to the World Economic Forum 2013.
A track record of delivery
Football fans (or soccer enthusiasts) will also be well aware of South Africa’s ability to develop masses of simultaneous infrastructure projects on time and to budget. A slew of world-class airports, a dozen new stadiums, a modern high speed railway and a highly-effective bus rapid transit system were all successfully planned, funded and delivered ahead of the country’s hosting of the FIFA World Cup in 2010. Since then, the pace of development has certainly not slowed. This year, the country plans to spend close to USD115 billion (some 1 trillion rand) on infrastructure across a wide variety of sectors. In Cape Town, one of the world’s top tourist destinations, officials are in the midst of an aggressive infrastructure renewal program that includes a completed major airport upgrade, significant road works, a new waste program and a city-wide broadband initiative. The eThekwini Metropolitan Municipality, which includes the port city of Durban, recently developed a new international airport and is currently undertaking a significant deep-sea port development. Durban’s new Waste to Energy project was recently cited as one of the world’s top urban infrastructure projects in the Infrastructure 100, which called the initiative a “model for the continent” based on its ability to provide renewable power to up to 6,000 low-income households per day.
A massive opportunity for foreign players
South Africa’s ability to undertake and deliver such a wide scope of infrastructure projects may – in some ways – be a double edged sword. From funding through to operations, the nation has become somewhat insulated and, more often than not, is getting on with the task at hand without the assistance or support of foreign investors or developers. This may prove to be a moderating factor on the nation’s ability to incrementally increase activity in some of the sectors where South African experience is somewhat lacking, particularly in the education and health sectors.
That being said, this will likely not be a challenge for long. Most infrastructure players around the world have woken up to the potential that South Africa presents, both as a national market and as a spring-board into the rest of the continent. At KPMG, we’ve already seen the number of inquiries from foreign infrastructure players rise exponentially over the past few years, many of which have led to significant investments into the market. For everyone else, our advice is simple: come see for yourself why South Africa is rapidly becoming a top destination for infrastructure. You won’t be disappointed.
Over the next two weeks KPMG Africa will highlight a series of topics and discussions that will be central to the World Economic Forum (WEF) on Africa.