Posted by: Bongani Mankeu
The Economic Reconstruction and Recovery Plan (ERRP) announced last year prioritized infrastructure spending to support the economy in the short term, and long-term reforms tend to boost potential growth, but require a consistent financing mechanism.
The ERRP sets out eight priority interventions to accelerate South Africa’s recovery and reconstruction efforts, with a focus on infrastructure as the main driver.
Key factors for restoring growth include a macroeconomic framework for fiscal sustainability, growth-enabling regulatory reforms, building capable states, economic diplomacy and African integration, and skills development.
The ERRP aims to attract over R1 trillion of new infrastructure investment through leveraging the private sector, building capacity in Infrastructure SA and Infrastructure Funds, reviewing procurement frameworks, and providing catalytic funding through mixed finance instruments. To increase infrastructure spending, the government plans to work with the private sector, multilateral development banks and development finance institutions to increase skills, expertise and capital.
Several structural measures have been put forward to strengthen infrastructure financing across subsectors, including pension fund reform and optimal use of public-private partnerships.
Central to South Africa’s plan is to revitalize the economy and recreate jobs through active infrastructure investment, re-industrialization, localization and export promotion, strengthened through resource mobilization and strengthening national capacity.
We look at the United States and what they’ve done to promote infrastructure. President Joe Biden recently announced an infrastructure and economic recovery package worth more than $2 trillion (R28 trillion) to stimulate the US economy. The U.S. plan aims to rebuild America’s transportation infrastructure, water systems, broadband, and manufacturing, among other things. But the key to the plan, the White House said, is a funding structure that would raise the corporate tax rate to 28% and measures to prevent profits from going overseas.
South Africa also needs to open up its financing mechanisms. South Africa lacks a formula for leveraging ERRP funds.
The United Nations Conference on Trade and Development (Unctad) has released a report entitled ‘Tackling Illicit Financial Flows (IFF) for Sustainable Development in Africa’. The report is primarily motivated by the urgency to address the financial hemorrhage from the continent that is impacting efforts to achieve the United Nations’ 2030 Sustainable Development Goals (SDGs).
Unctad highlights that Africa lost $836 billion from 2000 to 2015, or $88.6 billion annually. Unctad confirms that IFF from Africa represents 3.7 percent of the continent’s gross domestic product.
The puzzling dichotomy is that Africa needs $200 billion to achieve the SDGs, while it loses billions of dollars every year on IFF.
The Unctad report highlights that curbing capital flight could free up funds for infrastructure development, and also emphasizes the need for African countries to engage with the international community on tax reform.
It is recognized that most African countries lack the means to combat tax evasion by foreign companies. But in South Africa, a country blessed with sophisticated financial expertise, tax evasion is a low-hanging fruit in order to extract the funds needed for infrastructure development.
A daunting question is why the ERRP does not emphasize IFF as an important variable in the funding formula to ensure program viability.
Mobilizing resources for this noble ERRP requires a trusted enterprise among stakeholders in industry, government and academia, supported by the goals of the National Development Plan.
Bongani Mankeu is an Associate Professor in the Infrastructure Development and Engagement Unit at Nelson Mandela University.
*The views expressed here are not necessarily those of IOL or Title Sight.
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