By Yoza Jekwa, CEO: Mergence Investment Managers
Mergence Investment Managers recently hosted a webinar on the role women play in infrastructure investing. The panelists were all women who are leaders, pioneers and experts in their fields.
The webinar revealed many insights, the most important being the need for the private sector to better understand the benefits of economic and social infrastructure as an asset class in which greater and expedited investment is necessary so as for it to deliver multiple benefits, including:
- a catalyst for domestic and regional economic growth
- a positive societal impact by improving the access and availability of clean water, electricity, affordable housing , healthcare, digital connectivity, schools etc
- strong resilient capital returns for investors which are often supported by predictable cashflows.
It is clear that COVID-19 and the recent looting in parts of South Africa have exposed a glaring inequality gap, wherein women as caregivers and small business owners were the worst affected. Hopefully the current crisis however may prove the necessary trigger for the rewriting of the script as it pertains to infrastructure roll out and maintenance in our country. The participation of women in the entire infrastructure value chain remains very low, and active measures by government and institutional investors are needed to drive greater involvement of women-led or -owned business in the infrastructure value chain.
The aims of the National Development Plan remain highly relevant, however quick action is now needed, with greater collaboration between the public and private sectors. Government’s recent allocation of R700bn of the 2021 Budget to infrastructure is a step in the right direction, as is the commitment to infrastructure accounting for 30% of all governmental spend by 2030 (compared to 5,9% in 2020). The private sector also needs to commit capital from a combination of sources such as large retirement funds, asset managers, banks or development finance institutions (DFIs), where the funding model (and funding participants) is tailored to fit the nature of the infrastructure asset being funded. Public-private partnerships (PPPs) are a proven model and, in developed nations, PPPs drive 5 to 10% of infrastructure spend. In South Africa, PPPs have slowed down in recent years on account of a sluggish pipeline of ‘shovel-ready’ projects initiated by government. For example, the successful Renewable Energy Independent Power Producers Procurement Programme (REIPPPP) which has been a world-class success story, has experienced delays in opening up new bidding rounds.
Environmental, social and governance (ESG) investing has gained traction in recent years and many retirement fund trustees now understand and wish to invest in projects that not only provide a sound financial return but also make a positive impact on society. The regulatory environment is in the process of enabling this through changes to Regulation 28 of the Pension Funds Act which effectively makes infrastructure a separate asset category (with its own applicable limit) into which funds can make increased allocations.
Retirement fund trustees will need to understand the long-term nature of Infrastructure investments which represent “patient capital” but deliver predictable stable returns (readily outperforming government bonds and some other listed credit instruments) and an inflation hedge; and match the long-date liabilities of retirement funds. Investor concerns around the limited liquidity/tradeability of infrastructure assets may be ameliorated by a broadening of the secondary market or by hybrid investment products which are partially invested in listed bonds and in unlisted infrastructure debt. .
Women make up more than 50% of South Africa’s population and the role they can play across the infrastructure development spectrum was discussed in the infrastructure webinar hosted by Mergence Investment Managers. The leadership roles played by the panellists speak for themselves: