The program will support projects ranging from power lines and water systems to ports and freight rail, areas widely seen as essential to boosting growth in Africa’s most industrialized economy.
The initiative will be overseen by the Development Bank of Southern Africa (DBSA), the state-run development finance institution that finances infrastructure across the region.
“It’s going to be a massive injection in a very short period of time,” said Mpho Mokwele, DBSA’s group executive for reporting and communications, according to Bloomberg. “We now have the fiscal space to issue further guarantees to support infrastructure projects and programs.”
South Africa has long relied on state guarantees to support struggling state-owned enterprises, particularly in the energy and transport sectors. These guarantees pose a financial risk to governments because the state must intervene if companies fail to repay their debts.
According to Bloomberg, these contingent liabilities currently amount to about 661 billion rand (about $40 billion).
New credit guarantee instruments aim to alleviate that pressure by helping infrastructure projects attract private financing while limiting the government’s direct exposure.
The move also supports President Cyril Ramaphosa’s broader infrastructure drive, with his government earmarking R1.07 trillion for infrastructure investment over the next three financial years.
Mokwele said the guarantee vehicle could attract far more investment than the initial capital. The fund is expected to raise up to four times its $500 million starting capital, with the multiple likely to increase as it secures credit ratings and gains acceptance from investors.
Several global development finance institutions have already expressed interest in supporting the Fund.
Secured $350 million from the World Bank’s International Bank for Reconstruction and Development. Other institutions considering joining include the African Development Bank, the International Finance Corporation, German development bank KfW and South Africa’s Industrial Development Corporation.
Local commercial banks have also expressed interest, but Mokwele declined to name them before a final agreement is reached.
“When one of them comes in, the others will follow. The important thing is to send a positive signal to the market that they are keen to participate and support the government’s efforts to open up infrastructure,” he said of commercial lenders.
South Africa’s national treasury will also contribute to the fund, potentially with a stake of up to 20%, while state-owned entities such as DBSA could increase public sector participation to around 30%.
The funding comes as South Africa faces major infrastructure investment needs.
The country plans to expand its national power grid by 14,000 kilometers to connect renewable energy projects, many in the west of the country. This project alone is expected to cost around R440 billion.
Another R330 billion could be needed to upgrade ports and freight railways, which are critical infrastructure for exporting minerals and agricultural products, Bloomberg reported.
Mokwele said one of the first initiatives likely to benefit from the guarantee program is the government’s Independent Transmission Program, which aims to attract private investment into expanding the national grid.
“The first program we are looking at releasing is the independent transmission program,” Mokwele said.
However, this fund is not limited to energy infrastructure.
“It’s really a comprehensive coverage of infrastructure projects and programs, including hospitals and student accommodation,” he said.
Water infrastructure projects managed by the Trans-Caledon Tunnel Authority, which is responsible for some of South Africa’s largest bulk water schemes, could also benefit.
DBSA will also operate a public sector participation unit aimed at attracting private investment into South Africa’s logistics sector, Mokwele added.
