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It is widely accepted that South Africa has an infrastructure backlog that has served as structural hindrance to growth and development.
While there is general consensus about the need for investment in infrastructure, policymakers and academics are yet to find each other on the kind of infrastructure required for investment.
The contestation has been about deciding which infrastructure would have the biggest multipliers and highest (and most equitable) social benefits as well as the scale of the investment needed.
To this effect, President Cyril Ramaphosa, in his recovery and stimulus plan (2018), earmarked investment in social infrastructure as one of the areas that have the potential to stimulate economic recovery and proceeded to announce an infrastructure fund backed by the reprioritising of public budgets and private sector lenders.
It was a move hailed by many.
This unfettered belief in infrastructure-led growth from the president is commendable but requires the government to think carefully about what sort of infrastructure will yield maximum economic benefit lest we have a reoccurrence what we have experienced over the past decade with many investments but low productivity/efficiency gains because of poor management and wrong investment choices by the government.
Over the past week, students at the University of Zululand took to the streets to protest against the lack of decent student accommodation and security measures.
This catapulted the issue of student accommodation backlog to the centre of public debate and highlighted an area of interest that needed immediate public policy attention.
In 2012, the ministerial commission set to investigate the scale and magnitude of this backlog estimated that an amount of R147 billion over a 15-year period would be needed to address student accommodation shortage.
There are a number of long-term measures government can undertake to address the backlog of student accommodation in the country but the success of these measures would be contingent upon the ANC government forgoing its risk averse character.
Given the state of public finances, the below interventions I propose do not have to be financed from the government public budget (taxpayers).
For purposes of this article I limit myself to two.
Strategy 1: Private-Public Partnership
The government through partnering with the private sector can establish a R200-billion facility backed by development finance institutions and private funders/lenders.
This facility would lend money to South African contractors at below market rates on condition that the contractors prove a certain % of black and female ownership in the companies.
This facility will only be lending for the development and construction of student accommodation to avoid lending for unproductive activities.
On rural-based campuses, contractors may partner with local residents located in close proximity to campus, either to sell or open their homes for development.
This would be ideal for campuses like the University of Zululand.
Financing of this strategy will be debt neutral as it won’t be coming from the fiscus.
Development finance institutions would be required to re-prioritise their budget towards this national objective and domestic investors to open their cheque books.
There are a number of successful examples of how private-public partnerships have been instrumental in infrastructure expansion both in SA and abroad.
The Maputo Development Corridor, a toll road (N4) linking the South African mines and other industries to the port of Maputo (Mozambique), is an example of this sort of success.
This strategy can be anchored upon the principle of social compacting that brings all social partners together in the interest of finding lasting solutions to our mutual economic malaise.
Strategy 2: Quantitative investing by the reserve bank
The government could issue equity (shares) against building of new student accommodation (public works) and request the South African Reserve Bank to acquire them at below-market rates.
Sovereign currency will be used to acquire these shares thereby bypassing debt limits imposed by fiscal policy.
Government shares, unlike bonds, do require the government to pay interest nor add to public debt.
Government shares would only pay dividends to the reserve bank when the student accommodation facilities generate earnings, which for social infrastructure such as public student accommodation would be nil.
In any case, the South African Constitution does not expect the reserve bank to make any income.
Financing much-needed infrastructure through government share issuance to the reserve bank would have an economic spin-off without adding to the government’s already high debt and is neither consumer nor asset price inflationary as it increases productive capacity, unlike the much talked about quantitative easing.
This strategy is contingent upon rethinking of the country’s monetary policy to be in line with national objectives such as infrastructure backlogs. Monetary policy can sponsor major capital projects of the country in a debt neutral manner.
Student accommodation is where it could start.
Canada is a successful example of how to use sovereign currency to finance public goods.
Since 1934, the Canadian state built social and economic infrastructure using sovereign currency by borrowing from its central bank up until 1974 when it joined the bank of international settlements.
It is thus not surprising to learn that Canada emerged from World War II and extensive infrastructure expansion with very little debt.
Political economy issues to be considered
The success of these propositions is predicated upon the consideration of a few political economy issues.
Key among these issues is the much needed realism by our fiscal and monetary authorities that tight macroeconomic policies are inadequate to support investment in social and economic infrastructure.
Infrastructure expansion will have macroeconomic spinoffs like increasing the country’s aggregate demand and providing short/long term employment creation.
The other issue to be considered is the state’s capacity to implement.
Any policy or strategy has to be commensurate with the state’s ability to implement and manage the outcomes of the policies.
In our case, recent history shows that our governments are inefficient spenders of scarce resources owing to rampant corruption and institutionalised rent seeking in public institutions.
This has the potential to work against the promise of infrastructure led growth envisioned by the president.
To mitigate against the problem, the government will have to leverage the implementing capacity of the private sector by negotiating a fair balance between private-public sector control over capital projects however this will only be attainable if the trust deficit between government and private sector is defeated.
Economic returns of public investment in infrastructure and capital projects have well been discussed in economic literature.
These include short and long term employment creation but also increased household aggregate demand.
South Africa is in dire need of economic and social infrastructure, but at the same time is sceptical that this will bring about debt liabilities of the state (increase public debt).
Financing of the above proposed strategies does not have to come from tax payer’s money but from innovative and sovereign development financing strategies.
• Hlumelo Ncopo is a former student leader and writes in his personal capacity. He is studying political economy of development at the University of KwaZulu-Natal’s Graduate school of Business and Leadership.
