South Africa’s infrastructure programme should be used to spur the growth of small and medium enterprises,  in order  to have a transformative effect on the economy and create jobs. This is the view of Shamal Sivasanker, Infrastructure and Power Industry Leader at professional services firm Deloitte, who made the remarks at a panel discussion on the Department of Public Enterprise Budget Vote, held in Cape Town.

The panel comprised of Public Enterprise Minister Malusi Gigaba, Deloitte Infrastructure and Power Industry Leader, Shamal Sivasanker, as well the group CEO’s of Transnet, Brian Molefe, and Eskom, Brian Dames, respectively. 

Presenting the budget vote in Parliament yesterday, Gigaba unveiled an ambitious programme which will see state owned companies allocate an increased proportion of their procurement spend to black, youth and female owned business in order to “fund the emergence of black industrialists”.

Gigaba announced that in the past year, Transnet and Eskom spent more than  80% of their qualifying procurement spend on empowered companies. “South Africa needs more entrepreneurs,” said Gigaba. 

Sivasanker says infrastructure projects have a huge knock-on-effect on job creation across the value chain and South Africa must exploit this potential. “We are going into a critical period in South Africa’s history, we have never such capital injection and South Africa must use this period to create more SMMEs,” he says.

Dames pointed to Eskom’s record of helping create a new generation of entrepreneurs, such as coal miners Exxaro, by being the primary purchaser of their coal output. Eskom is expected to spend R200 billion on coal purchases over the next five years and more than half of this is to be sourced from emerging miners. 

Molefe and Dames highlighted their organisations contribution to skills development, a crucial component of transformation, as they train not just for their own needs but those of the wider economy. Last year, Eskom and Transnet, helped train 12,000 learners as artisans, engineers, accountants and project managers. 

Andre Pottas, Infrastructure and Capital Programmes Leader at Deloitte, says government and the private sector need to find innovative ways to fund infrastructure. 

He points out that South African banks will face constraints in the long-term and structured lending for infra projects as they comply with tougher capital requirements under Basel III. This means that government and private investors have to tap into other sources of funding, such as pension funds. 

One such instrument is the R1bn Soitec bond, which saw Deloitte partner with Standard Bank to issue South Africa’s first infrastructure project linked bond for a private company that is funded entirely by institutional investors. The bond was listed at the end of April and is to fund the construction of a Photo Voltaic Plant in Touwsrivier,  Western Cape by French Company Soitec.

He says the bond attracts pension funds and similar institutions, which may previously have had restrictions on investing in infrastructure. The bond has already attracted interest from the development banks of Japan and Britain.

Pottas says the bond can also attract sovereign wealth funds that are looking to fund infrastructure all over the continent.