An “historical unwillingness” by the state to crowd in the private sector is behind the extraordinarily slow pace of infrastructure rollout, FirstRand’s chairperson Roger Jardine said in the financial services group’s annual report released yesterday.
“President Ramaphosa … has regularly acknowledged the criticality of South Africa’s infrastructure programme as a key driver of his economic recovery strategy. Yet, it is hard to identify one government-led infrastructure project of any significance that has actually been executed. Progress, in other words, has been, to date, glacial. The pace does not correlate to the stated ‘extraordinary’ nature of the measures required. Extraordinary suggests urgency, immediate action and focus,” Jardine said in the report.
While he acknowledged that there is “some evidence of a shift in this thinking in some parts of government … we have a long and difficult road to travel together.”
On some promise in the energy space, Jardine said: “Again, government was slow and the electricity grid was, and remains, on its knees before they embraced partnership with the private sector.”
He said it was unfortunate that thousands of kilometres of rail were inefficient or simply not functioning anymore, and industry estimates put the foregone export revenue to ailing Transnet infrastructure and operations, rampant crime on its railways and a shortage of locomotive spares, at around R40 – R50 billion annually.
He said the 16 rail slots that had become available for the private sector to run, manage and invest in fell well short of what was required to overhaul logistic infrastructure, and notably improve efficiencies.
“Equally, it’s well known South Africa’s ports are among the most inefficient and costly in the world. This must change,” he said,
“The longer port authorities take to establish partnerships with the private sector to help improve operations and address bottlenecks arising from old technology, ageing (and worn-out) infrastructure and inadequate container capacity, the bigger the risk that the market share recently lost to the likes of Maputo Port becomes permanent,” he said.
He said FirstRand was committed to assisting the government in capacity building within its institutions to enable the delivery of critical infrastructure.
“The GDP (gross domestic product) growth sacrificed by the neglect of the infrastructure assets has been enormous. Investment to GDP is stuck at 14% – a paltry number compared to other emerging markets. It is to be hoped the commitments made by Operation Vulindlela start to have an impact and scale that grows the 14% to at least 25% over the next decade. It is definitely achievable,” he said.
He said one reason there was no time to waste was that South Africa was enjoying the benefits of a strong, albeit fading, commodity cycle, which had boosted the country’s terms of trade and fiscal and balance of payments capacity.
“This temporary revenue boost … must be urgently utilised to assist the transformation of the economy’s production capacity,” he said.
FirstRand CEO Alan Pullinger said FirstRand’s normalised ROE (return on equity) was expected to remain in the target range of 18% to 22% in the 2023 financial year. Earnings were expected to revert to the long-term target of real GDP plus CPI plus up to 3%.
Pullinger said the credit cycle would continue to gather momentum in the short term, although commodity-induced cyclical tailwinds were expected to fade.
“As inflation subsides and economic reforms progress, these trends will support accelerated advances growth across the domestic retail, commercial and corporate portfolios. This in turn will drive stronger lending net interest income in the 2023 financial year, supported by ongoing growth impetus in deposit balances,“ said Pullinger.
BUSINESS REPORT