By: Tessa Brewis - Director in the Banking, Finance & Projects sector; Deepesh Desai, Associate in the Corporate & Commercial Law sector and Azola Ndongeni, Candidate Attorney at Cliffe Dekker Hofmeyr

Finance minister’s focus on infrastructure spend and SA’s R20 billion loan from BRICS Bank spell  opportunities for water infrastructure developers.

With load-shedding seemingly under control for the present, securing access to water and sanitation services for South Africans appears to be the next looming issue. 

Finance Minister Enoch Gonongwana’s focus on infrastructure reform echoed this sentiment in his latest Mid Term Budget Policy Statement this week, as he noted that growth-enhancing infrastructure would form one of the four key pillars of Treasury’s strategy. He further noted that dedicated capacity would be allocated to the Department of Water and Sanitation’s Water Partnerships Office.  

Gauteng’s bulk water supply crisis and fast approaching “Day Zero” have been attributed to high water withdrawals by municipalities, largely caused by leaks due to failing municipal infrastructure. 

The results of the General Household Survey 2023 published by StatsSA show that about 13% of households in South Africa do not have access to on-site or off-site piped water, and about 16% of households do not have access to sanitation services. The municipalities that are responsible for rendering such services often lack the financial stability and the necessary expertise and capacity to do so effectively.

BRICS Bank funding to fuel water infrastructure development

At the end of August 2024, the New Development Bank, as established by the founding BRICS nations (Brazil, Russia, India, China and South Africa), approved a loan of $1 billion (approximately R17,86 billion) to South Africa, for the enhancement of the South African infrastructure sector. It is anticipated that these funds will be used to fund large national level bulk water infrastructure projects and to address infrastructure funding gaps not covered by the Municipal Infrastructure Grant programme. This will be a significant contribution towards developing much needed water and sanitation infrastructure in South Africa.

Water infrastructure developers and contractors can anticipate numerous long-term opportunities to provide services to municipalities and to partner with the State to undertake the development and expansion of various water and sanitation infrastructure projects.

PPPs an effective way to deliver water infrastructure 

One of the ways to address the lack of capacity, insufficient expertise and limited resources of municipalities to deliver water infrastructure, is to promote public-private partnerships (PPPs), where the private sector brings upfront capital, technical skills and experience and collaborates with Government. 

In his speech this week, the Finance Minister announced that the proposed amendments to Treasury Regulations 16 (issued pursuant to the Public Finance Management Act 1 of 1996) would be finalised by November for implementation in 2025/26 and the Municipal Public Private Partnership Regulations (issued pursuant to the Municipal Finance Management Act 56 of 2003) will be finalised by June 2025. These draft amendments are aimed at promoting PPPs in South Africa and attracting more private sector investment by streamlining the PPP processes, including in respect of procurement, management of PPP contracts, and institutional relationships across a PPP process. His statements in the MTBPS this week around making a concerted effort to increase the pool of funders to diversify public infrastructure financing through new mechanisms and instruments reinforce this commitment to realising goals through private sector collaboration. 

South Africa’s new Government of National Unity has adopted a business-friendly strategy and has identified infrastructure, including water and sanitation, as a strategic area for private sector participation.

Collaboration between business and Government, with the support of institutions such as the New Development Bank, are essential for addressing South Africa’s water crisis. The private sector will have to consider all factors at play to ensure that while they benefit from participating in such projects, they also plan for the risks that may arise.