ECONOMIC GROWTH & ENHANCED LOCAL PARTICIPATION THROUGH INFRASTRUCTURE DEVELOPMENT

ECONOMIC GROWTH & ENHANCED LOCAL PARTICIPATION THROUGH INFRASTRUCTURE DEVELOPMENT

INTEGRATING INFRASTRUCTURE DELIVERY TOWARDS 2030

CJ Venter05 October 2010

Introduction

Innovative approach to contribute to the developmental objectives of the state -

•creation of decent work and sustainable livelihoods•education•health•rural development, food security and land reform•fight against crime and corruption

- through infrastructure development and enhanced local participation

Economic growth in Limpopo

• Economic growth:– Large scale mining & industrial development– Government infrastructure investmentbut …– With limited local economic impact and job creation

(jobless growth)

• Infrastructure development:– Growing infrastructure backlogs– Insufficient institutional capacity– Ad hoc and uncoordinated development approach– Funding shortfalls

“Discussion objectives”

• Review current realities ito infrastructure development

• “Paradigm shift” – towards infrastructure development

• Application of integrated project development

• Synergies and alignment with mining sector

• Opportunities for enhanced local participation

• Key considerations and conclusion

INFRASTUCTURE REQUIREMENT

CURRENT REALISTIES

Current development processes

• Current processes are critical:– In annual budgeting cycle– Establishing infrastructure backlogs– Staking the province’s claim for a slice of national funds– Initial project identification

but …

• Current processes are not necessarily:– Focussing on alternative financing mechanisms– Focussing on integration– Political imperatives

What infrastructure is needed?

How will the infrastructure be funded?

Available funding

Shortfall

“PARADIGM SHIFT” TOWARDS INFRASTRUCTURE DEVELOPMENT

Treasury guidelines: 2011 MTEF

• Infrastructure & capital projects / programmes – must ensure the following:– Efficiency– Cost effectiveness– Better allocation of resources

• Project appraisal cycle:– Project identification– Pre-feasibility– Feasibility

• Feasibility study:– Detailed analysis of ALL costs and benefits– Quantitative risk assessment– If above not met, project not ready for implementation

Alternative funding mechanisms

GearingGearing(leveraging funding off assets)(leveraging funding off assets)

Project Finance (borrowing against revenue)

Sponsoring Partnerships (seed funding, underwriting)

Borrowing(conventional, bonds)

Own

Grants

Cash flows under pressure due to growth in debtors

Balance sheet borrowing capacity in decline

Budget deficit necessitates more strategic use of national fiscal resources

Main source of project preparation funding – not to be confused with PPP model

Huge potential, yet reluctance in SA to explore this approach

Internationally, most rapid growth in funding mechanism for new infrastructure creation

“Treasury Guidelines - similar to financier requirements”

A different approach – “paradigm shift”

• Integrated approach to needs analysis and master planning

• Sustainability and affordability vs backlog eradication

• Risk management – technical, financial & institutional

• Important to focus on the question how infrastructure will be funded if sufficient funds cannot be obtained from National Treasury

• Satisfy financiers’ (including Treasury) requirements

• Government assist vs government driven solutions

APPLICATION OF INTEGRATED PROJECT DEVELOPMENT -

MUNICIPAL EXAMPLE

Integration ……. municipal example

R200 mil bulk water & sanitation

5 000 – 10 000 housing unit integrated housing developmentInternal services: R750 milTop structures: R300 milAmenities: R500 mil

Electricity supply system:Bulk: R300 mRetic:R100 m

Refurb of reticulation systems:R200 mil

Rehab of existing informal settlements R20m

Asset manage-ment R80 m

Institutional R30 mil

Roads and stormwater: R200 mil

Integration ……. municipal example

Comments on the example

• Significant service delivery impact• Meets many political imperatives (housing etc.)• Unlocks development (economic development)• Public amenities & social infrastructure• Significant job creation & empowerment impact• Gearing of government funding - 1:3

• Challenge …– Who will put up the development capital?– Too complex to be managed from within a single

department– Major institutional risk

… hence the “paradigm shift”

THE NEW MINING DECLARATION & INTEGRATED SUSTAINABLE

DEVELOPMENT

Addressing inter alia the following …

• Implement the concept of “Mining Vision 2030” through sustainable development principles

• Develop a partnership approach towards mining community development

• Establish regional development funds

• Include Multi-Nationals into development initiatives

• Promote enterprise development

• Enable sustainable job creation and training opportunities

CONSIDER THE FOLLOWING APPROACH TOWARDS …

ENHANCED LOCAL PARTICIPATION

“New paradigm” project preparation to enhance local participation

• Focussed LED through large scale multi-disciplinary projects• Integrated project preparation programme – labour supply &

demand• Technical optimisation vs bankable feasibility• Managed approach towards optimum utilisation of local

resources• Active empowerment programme for local business & labour• Sustainable (regional) training & skills development programme• Consistency of labour practices across developmental

programmes• Integrated reporting ito client needs, governmental guidelines and

legislative imperatives

Integrated project preparation programme – labour supply & demand

Training & skills needs assessment vs labour supply & demand

Formal programme, M&E and reporting – supporting all developmental initiatives

Increased local participation / decrease foreign resource utilisation

KEY CONSIDERATIONS &

CONCLUSION

Key considerations

• Switch intervention to paradigm of “Government assisted solutions” by …– Exploring alternative funding mechanisms to finance the

capital shortfall– Establishing an integrated project preparation capability to

address all developmental objectives– Establishing a project preparation funding facility

• Utilise integrated infrastructure development programme as catalyst to contribute to the Manifesto objectives through …– Local economic development– Enhanced local participation