Private investment in infrastructure should not be viewed as a quick way to make money, Deputy Finance Minister Nhlanhla Nene said on Tuesday.

“Infrastructure development should not be seen as any easy way to make money out of government,” he told the Banking Association’s summit in Johannesburg.

The investment, however, should be viewed as long term, providing steady returns over time.

“While infrastructure projects require substantial funding during construction, they thereafter yield steady returns over an extended period.”

He also mentioned that the private sector should also incur some risk when investing in public projects.

“While private sector investment is vital, we must always ensure the risks and benefits are shared fairly between the private and public sectors,” he said.

The banking sector has been called in to lend its skills when it comes to large infrastructure projects as the public sector was short of these skills.

“Many of these skills exist in the banking sector. We should not let these skills go to waste.”

South Africa is embarking on a massive infrastructure roll-out, having identified R3.2 trillion worth of potential projects between now and 2030.

“Over half of these projects, about R1.9 trillion worth, are in electricity, transport, education and health,” Nene said.

There was a role for the private sector in these projects, as government expenditure was limited by how much tax revenue it could collect and how much debt it could take on.

“Our revenue collection and our ability to borrow are constrained by the weak global economic conditions. This means there is limited capacity for government to pay for everything.

“Thus, while infrastructure projects will always rely heavily on public funding, there is a role for the private sector,” Nene said.

The state-led infrastructure plan was announced by President Jacob Zuma in his State of the Nation address in February. It lists 17 projects involving energy, transport and logistics infrastructure, schools, hospitals and nursing colleges.

Referring to the National Development Plan, Nene emphasised why infrastructure development was crucial to increasing South Africa’s growth.

“A one percentage point increase in infrastructure investment will, by some estimates, raise long-run GDP by about 1.3%and employment by about 0.7%.”

Countries such as China and post-war Germany were examples of how infrastructure investment led to economic growth.

“If we want the same rapid transformation of our country into an economic powerhouse, we must begin building that future now.”

Nene said the African Development Bank estimated that a shortage of roads, housing, water, sanitation and electricity reduced sub-Saharan Africa’s output by about 40%.

South Africa therefore also needed to get involved in improving regional infrastructure.

Nene is a member of the Presidential Infrastructure Coordinating Commission, which was set up to oversee the implementation of infrastructure and ensure coordination between government departments.

Photo: Deputy Finance Minister Nhlanhla Nene