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00:11
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Hello and welcome to the Standard Bank podcast for this week. My name is Godfrey Mutizwa. We come to you this week from Davos, Switzerland, where leaders from various parts of the world have been talking about collaborating and collaborating at a particularly difficult time given the geopolitical fragmentation that we have seen. |
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00:31
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But they've also been talking about the opportunities for investment on the African continent. I just wanted to share with you a few stats about some of those opportunities. Now, according to the African Development Bank, the continent only invests 4% of its GDP on infrastructure. |
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00:49
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Contrast that with China, which invests 14%. And according to the bank, that costs the continent about 2% of potential growth. So we're talking about that opportunity today. |
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01:01
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Let me introduce my guests to you. I've got with me here today, Luvuyo Masinda, the Standard Bank Corporate Investment Banking Chief Executive. Luvuyo, thank you for your time. |
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01:09
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He's joined on my panel today by Andrew DeLeone. He is Alstom Region President for Africa, Middle East and Central Asia. Welcome, Andrew. |
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01:18
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Thank you, Godfrey. |
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01:19
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Let me begin with you, Luvoyo. So, we've been going up and down, of course, the streets of Davos. And I say streets because practically it's two, right? Talstrasse and the Promenade. And we have also been sitting in sessions talking about opportunities and also discussing, of course, the environment in which those opportunities exist. I wanted your key takeaways from Davos this year. |
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01:41
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No, thank you very much and thanks for taking this discussion, Godfrey, and thank you for joining. I suppose one of the first things I try to do intervals is that I don't slip on you know, what should have been able to remain dry. |
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01:59
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But I've slipped once. |
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02:00
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Ohh. But back on, in all seriousness, back to my key takeaways on the discussion that we've been having. |
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02:08
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I think your point painted a picture of the, I suppose at a macro level, what are some of the key considerations around geopolitical, that has been a key focus. But if I put an African angle, there've sort of been a couple of key takeaways for me. |
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02:26
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The first one is, firstly, that this work takes place in the year that South Africa will become the first African country to chair the G20. And as a result, you've actually seen the African presence and in general their agenda taking more prominence than it typically would. So that's been the one key takeaway—and a lot of interest in exactly what it is when you talk about opportunities in Africa. Secondly, it's been around the focus on growth. |
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03:00
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Sure. |
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03:01
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Which is actually very exciting and that is across various spectrum. And we'll speak more about infrastructure, but that growth actually has been across the various sector, various sectors and various markets as sort of being the one in the discussion around growth, and in infrastructure specifically, |
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03:26
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One of the key takeaways that's come out is just the need to collaborate. You've quoted and painted a picture of some of the gap that we see in Africa. It's very clear that to fill that gap, Africa's own resources are just insufficient. |
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03:41
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And so the ability to partner the private sector and find the capital pools that sits outside of the continent become very important. So that's been some of my key takeaways. The last one is just being how prominent the AI discussion—artificial intelligence has been. And it's shifted to not AI for AI's sake, but how it can be leveraged in to solve different problems in different sectors. And so those have been some of my key takeaways. |
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04:11
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Absolutely. And you and I said in a session where we spoke about infrastructure, and we want to talk about infrastructure today, because this is a hard infrastructure man, right? |
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04:22
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Let's perhaps, your picture, if you will, of the opportunities across the African continent from an infrastructure perspective. |
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04:30
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Yeah. Look, I mean those, it would be useful maybe as a starting point to provide some of the drivers for that opportunity and some of the drivers actually quite global macro. If you think about the energy transition that is taking place across the globe and the role that critical minerals plays in that transition, that's been the one driver, because those mining of those critical minerals requires infrastructure once you've mined them to get them to the right places in the value chain in the most efficient manner. |
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05:10
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So rail infrastructure is a big beneficiary of that. The energy transition itself is meant that a lot of energy infrastructure is also big, a big driver for the opportunity within for the continent. When you come more to the continent itself, there are gaps, especially around social infrastructure, that there's a massive backlog, whether you think about the water infrastructure in challenges that we've had in South Africa. |
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05:47
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The last piece, which is often not spoken enough about. But you know, in our experience of the bank and what you've seen the last few years, it's just been the growth in the telco infrastructure. Again, you know, linkages to AI in the development and digitization offer a lot of these economies. |
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06:07
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We've seen a lot of capital being applied to that. And so those are some of the drivers, some macro, and some specific to various kinds. |
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06:17
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Absolutely. So let's bring our Andrew into the conversation. And you and I know from a South African perspective, that the bulk of South Africa's goods are being put on the roads where they're doing a lot of damage and well, of course, it is costly. So Andrew, in you come, |
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06:34
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I wanna begin first with your overall look at infrastructure investments potentially on the African continent before we zero in on South Africa. |
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06:43
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Oh, we see you talk about rail specifically |
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06:49
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emergence of mega cities has been articulated, the economic opportunity that it's extremely important for the continent to capture around critical minerals and getting bulk goods to ports so we can derive. GDP growth out of our economies, it's not just South Africa, it's a continental story is driving major investments both in terms of I call freight infrastructure, but also passenger infrastructure in cities. And we see it everywhere, whether that's in North Africa whether Egypt, Morocco are spending enormous amounts of sums to revitalise passenger rail. |
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07:34
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You see it in West Africa, the first metro system in sub-Saharan Africa and Abidjan you see Lobito corridor, you see other feets and then you get the South Africa. So there's never been a time where there's been more rail infrastructure and investment happening in the continent than now. |
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07:52
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It's interesting because I was in Rabat and I saw their equivalent, let me put it this way, of the Gautrain and I really was taken back home to Johannesburg when I saw it. But are you busy? Are you finding it easy to be a part of these projects that you're talking about? |
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08:11
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Well, you speak about Rabat and your experience there. In Morocco you have the first very high speed train on the continent travelling 320 kilometers per hour, completely changing your sense of distance between cities. And that's not technology that we should think should only be in Europe. That's technology that deserves to be on the African continent. |
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08:36
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Is was going to say 160 kilometres per hour with the Gautrain. |
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08:40
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Yeah. And and we're at 320 in Morocco and when you speak to the Department of Transport in South Africa, it's very clear that we mean business when it comes to national high speed program. And there are certain lines in the country that make a ton of sense, and we'll get cars off the road, but more importantly we'll get people off airplanes, and into trains safer, faster and a lot more sustainable. |
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09:10
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I want to talk about where you are active and what you are doing in the plans for 2025. But Luvuyo, let's talk a little bit about of course the money that's required to fund these projects and these are not your fly by night projects where you wake up one day and you do a deal in tomorrow. You start constructing this take time, right? |
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09:27
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So let's talk about how you are financing those projects and the kind of challenges that you are having to deal with in order to be able to find first the capital and then of course the returns that you require. |
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09:39
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No, absolutely. I mean that I suppose we talk about infrastructures and opportunity, but I'm sure if people were sitting here 10 years ago they were probably talking about very similar themes for growth around the continent and that is absolutely right, a lot has been done, |
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09:59
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but there definitely been challenges that stopped us doing what needed to be done. And some of those speaks to the funding need that you talk about funding needs into I suppose two areas, the right type of funding to make these projects bankable. Often they are underpinned by sovereigns. |
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10:23
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We know the challenges that I suppose globally sovereign has been under, but more so in the African continent as they appeared to, you know, respond to the challenges around COVID. And therefore their own fiscus are not in a position to, you know, apply funding to make some of these projects bankable. So that's been one. |
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10:50
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The second has been actually the cost of funding for this project there is definitely a sense that I mean you, you could look at this that you know, the risk rate for Africa, relatively, we definitely paying more , then we should which makes doing business business expensive. |
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11:09
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So you have to be creative? |
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11:11
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Absolutely, and creativity is twofold, firstly it's finding the right capital pools with the appetite for Africa risk for the right projects and firstly having that ability to match. Secondly, it's finding financial solutions, landed finance that can, you know, suitably, respond to some of these needs. |
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11:37
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And so the role of commercial banks, multilateral private capital and that's our role as a bank on the continent. We think we have the ability to do that given our presence, our our own risk appetite and size of balance sheet, but more importantly our ability to partner with both private like the likes of Ultram as well as you know the policymakers. |
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12:04
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I'm hearing you saying that this is hard work, but I'm also hearing you say that there are opportunities here that we need to try to exploit. So I'm going to come back to you and ask about what kind of strategies we need in order to be able to realise those opportunities. |
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12:19
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Andrew, come in and you would be obviously coming in as a foreign investor, right, Who is participating in these opportunities? And I wanted to know from your perspective, are some of the key things that make it difficult for you to take them up. |
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12:32
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If you were to advise the government that's perhaps looking at an opportunity like our expanding their urban infrastructure ability in railroad and that kind of thing, what would you say to them? |
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12:42
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Well, first of all, I think that our perspective is we're extremely local in how we operate. You know, we have more than 2000 people in South Africa. I consider myself and our team, shows up as a South African company in the country. |
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12:58
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And we could give you a lot of reasons why I think I could convince you of that. But let me answer your question. I think we have to look at it in two streams. On the freight side, there is a tremendous business case to bring in private investorsvto come into freight rail in South Africa. I think all that's been needed OK, was a clear policy road map. |
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13:25
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And I think the country has that. So I think the country is going to have a lot of success about getting really competitive bids, to bring private traction onto the network to help the country meet its goals, in exportation and kind of, I'd say freight transit, number one, I have a lot of confidence in that. |
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13:51
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And by the way, we're not afraid to be one of those people. Even though we're a technology provider, in many cases, we find that if we play a little bit in the equity structure of a project, it brings a lot of confidence to commercial players to join us. |
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14:12
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So that's, I think I'm afraid on the passenger side, it's a different equation. I think that the passenger side, the business case of passenger rail in a country like South Africa is extremely good. |
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14:26
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But it is good not from a return on investment i.e. not that PRASA should make a lot of money. The Prosa team is working incredibly hard to restore service to get people on trains because the price of a ticket for South African to ride commuter rail is a fraction of any other mode of transportation. Which allows them to take that available capital and invest it in the country. |
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14:58
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But Andrew, isn't that part of the problem which then makes it unsustainable for I don't know whether we could say it from a private sector perspective or from a government perspective, because government can come in as long as the political will is there to put in these amounts that enable those prices to to be low |
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15:15
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I think Godfrey on this I think that our challenge on passenger rail on the continent is we don't take a wing to wing economic view of what it brings to a country |
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15:27
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Integrated |
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15:28
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And I think it's it's not just about hey, I collect revenue of it, I sell tickets. It's not that, it unlocks real estate value and it decreases the percentage of disposable household income that someone spends on transportation. |
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15:44
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And in South Africa, we spend an extremely high percentage of disposable income on transportation. That's eroding what we can do in the rest of the economy. So I think what South Africa's done, which is fun this on the fiscus. |
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15:58
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Has not been a foolhardy strategy. I think there's a lot of intelligence behind it because the other thing that's happened, as the country has done that, and this is different than other parts of the continent, |
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16:12
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is that it's created an entire railway industry that's localised behind that. And the economic multiplier of the jobs, if the economic multiplier of the system when it's running at its proper capacity will be immense. Our challenge has been is that we haven't had the infrastructure hold up and that's slowed the vision that the country had. |
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16:36
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Luvuyo is that a difficult thing from a South African perspective for the government to commit to? Let me say, until now, because we're now seeing an acceleration of all those reforms before what would have been perhaps some of those things that inhibited the government from being able to create the environment that is talking about? |
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16:56
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Yeah. Look, I mean, I think the first starting point is to also recognise that they've gotten it right and I'll get to where I've seen the challenges and why some of the progress has been done. If you think about the energy situation in South Africa and the response in bringing private capital to and and private skills to assist the government in the energy generation for the country it's actually an incredible model and a very successful and world class model. And when you when you then ask, well, why did that work? |
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17:34
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Suppose number one, there was a burning bridge but secondly, it was sort of ring fenced to one or two departments that really needed to to work closely together. When you for example, think about Andrews example you actually require proper integrated planning. |
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17:56
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That thinks about the benefit of having a proper functioning rail, passenger rail , remember that the benefit is not at a PRASA level and therefore the transport only department. But you need that and I think that's been one of the difficulty as being the ability to really integrate the planning at a national level and then make the right decisions at at that level based on that a clear integrated plan, clear outcomes that we're looking for. And so I think that's been one of the key challenge |
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18:28
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And I want to come to Andrew and talk about perhaps examples that we can use to learn from a South African perspective from other parts of the world. But we in South Africa, of course, we have one successful example, the Gautrain |
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18:43
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And Andrew, you guys were also involved in that. So let's talk a little bit about the kind of partnerships that enable such kind of projects to be pulled off or start with you and then we'll come there. |
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18:57
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Yeah. I think, you know, those partnerships went right across at a national government level, provincial level, the private sector, and having a partnership, you know that both shares both the risk value upside, you know, in a fair manner. |
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19:20
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That's what you guys look for from a bank perspective? |
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19:22
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Absolutely and you know that's what I would look as well if I was allocator, capital allocator is to make sure that the private-public partnership is grounded on clear alignment because that's really critical. And once you have that, it becomes easier for the private capital to put the right capital at the right capital structure, which then allows and frees up and releases a lot of capital for the commercial banks and and multilaterals. Yeah. And so it again speaks to really integrated. |
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19:55
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It's very difficult to do these large projects among one or two people. You need the multiple sectors involved. |
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20:02
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I totally agree on the government. First of all, government alignment and then appropriate risk share with you is completely correct. I think the other piece of it is, blending global and local expertise and I think the Gautrain is a tremendous example of that. And I think in the PPP structure of South Africa, this, this principle of value for money is really important, which does not mean that I want the lowest tariff. It means I want value for money. And I think that's allows, I think we saw it in power very successfully in power. |
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20:44
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It allows decision makers to say, hey, what's the right partner that I want to run this thing forward. It's not a CapEx investment. It's a different type of arrangement. |
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20:56
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You need a partnership. And I think the, I think the country is strong legislative and and kind of legal approaches to PPP which allows it to be successful in South Africa and we haven't seen that other places on the continent. |
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21:12
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And we need to see that another place on the corner because of the issues that you spoke about. And now you listen the other day to Minister Gotama talking about some of the priorities that the government is working on and also some of the reforms that the government has been implementing, especially to tackle the rot in the urban areas, as well as the infrastructure funding challenges that the government is facing the past. I wanted your critique of that and whether you're seeing enough in your view to enable the capital unlock that we are asking for now. |
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21:41
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Yeah, I mean, when you listening to to the minister, the positive take outs were there, it's actually a clear focus on what you know, what will be prioritised. And |
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21:57
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I suppose you hope that that's been done in conjunction with the private sector because ultimately, especially when it relates to economic infrastructure, less so social, although it's critical. So that's that was a the one piece that wasn't quite clear to me or in terms of this prioritization, was it done in conjunction with the private sector, with the with the private sector or rather getting some of their feedback. Number one, the second has been, you know, capacity, |
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22:30
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within the various arms of government, whether we, you know, we've rippled that capacity enough to get project preparation in place both across the various ministries. But in some of the, you know, government Dfis as an example, I definitely got a sense that it's been a big focus in the, you know, leveraging areas like, you know, organizations like DBSA. But I must say it's probably one of the challenges that you see in that you need that capacity at all spheres of government was often you execution is at a local government level years. And often that's where we see things trip up as well that you've got very clear plans at a national level and they filter down to provincial level, but where the rubber hits the road you also get implementation. |
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23:28
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Absolutely, Andrew. Yeah, I want you to add to that. But I also wanted to to to move on and talk about the kind of policy changes that we would like to see, right. |
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23:40
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To pick up at the point of capacity first, I I think we we shouldn't, first of all, infrastructure projects in Africa have a better success rate than people realise, okay this is one of the big misnomers that infrastructure projects in Africa are immensely risky adventures. It's not true actually. Ohh, the data tells you it's not true. But one of the things we can all admit is that building infrastructure on the continent brings about more challenges than you typically see in some other markets and you need the capacity to be able to deliver it. |
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24:18
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I think Luvuyo's point on how are we capitalising ourselves to deliver this, you look at the challenge that the Transnet leadership team has to, has to take on to get the infrastructure in a world-class fashion. Yeah, that's not an easy job. It's a big country. |
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24:37
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It faces different type of challenges than I was in Kazakhstan last week. It's a country with a big rail infrastructure. They don't face the same type of challenges we face. So, so you need to be able to capacities size to be able to do this. |
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24:54
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And I think that the point is very well heard in terms of policy as we're speaking about finance and. |
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25:01
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As you think about, I want you to add the other models that we can learn from. Now you speak of Kazakhstan. |
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25:06
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Yeah, I think, I think that |
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25:10
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South Africans model on infrastructure projects in rail has been fiscus driven, but not naively fiscus driven. It's been fiscus driven because the country wanted to develop local know-how in local content to build capability that could endure. And I will tell you if you look back over the past ten years in rail, the country has done that, okay. |
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25:39
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The country has done, we build a train in South Africa faster than we build it in any country in the world. |
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25:46
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That's capacity that that the country built by longview infrastructure thinking, okay. And to do that, it was funded by the fiscus to to drive that. Now, I think that's been a very successful plan. I don't think that we should abandon all of that that we've built, but I do think what we should think about more is more blended finance. I think we can't blame it. |
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26:12
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Explaining what we can't. |
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26:14
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Look, if if it costs 10, the fiscus was always paying 10, right. I think that's a little bit too much to ask today, but can. |
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26:22
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Especially in the face of other competing leads. |
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26:24
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Exactly because I look, I want South Africa to choose education and healthcare, |
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26:30
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I don't want South Africa to only choose rail. That's not good. We need it. So if we were paying 10 forever, maybe we need to pay 5 off the fiscus and we need to find a way to bring in five from DFI and other other sort of places who I think are ready to invest in the country. And I think we get a, we can get as good of an outcome and we can help redirect capital to other pressing needs that are in the country. |
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26:56
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Absolutely. That's your day job Luvuyo? |
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26:59
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Absolutely. You know, we advise clients to use their capital, you know, in a efficient way, to make they Rand to go long. That's exactly what we've just, you know, you could use five and get the benefit of 10 investments, but it requires a very clear planning and I think both from you know, I don't think it's very clear that the environment is right for that. So I think both from a policy perspective there's definitely appetite from Dfis and from both private capital as well as commercial banks. |
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27:37
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And the risk of offending some people who say you are loading South Africa centric solutions onto the continent, is that a model that could work in other parts of the continent? I want you to talk perhaps so far other areas where you at Standard Bank presence in over 20 countries on the continent you have been looking at. |
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27:55
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Yeah, it's in in other parts of Africa, ironically. And given some of the fiscal pressure, we've seen blended finance and PPP models actually even mature and more than and more established in some of the markets. And, sorry, just to digress, it's been one of the key things that actually come out of this year. Just acknowledgement that Africa is not homogeneous. |
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28:23
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Sure, for sure. |
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28:24
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And every country is in a different space. And even when it comes to PvP is we've definitely seen some of the markets actually step ahead relative to South Africa, if you can call it in, in that way because of their own circumstances. |
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28:41
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And so we've definitely seen that in some of the projects that we've seen, for example in Kenya, they own road ata large road project that that that we've seen. |
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28:53
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We've seen investments in ports both in East and West Africa, thing about Mozambique, Cote d'Ivoire and Nigeria. And so actually in some of the markets, the model is maturing and is at more mature stage, but every market has its own dynamics. |
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29:11
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Absolutely, yeah. And you want to come in and run up. |
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29:15
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It's a very good time would be in infrastructure investor and the like. That is for absolutely sure. I think that as we think about growth, we shouldn't the one thing we can't do is forget that we have built strong industrial base in South Africa. You know, we need jobs to be pulled through. We need we need industrial jobs to be pulled through with infrastructure projects. |
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29:43
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South Africa's accomplished that in the last 10 to 15 years in its infrastructure build out. I think more so than the rest of the continent. I think that's what the rest of the continent wants to catch up on. |
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29:54
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Visa, South Africa is how can I build the same industrial base that South Africa has? We need to stay ahead in South Africa. |
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30:02
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And I like the fact that you're saying we need to stay ahead in South Africa and Africa. Andrew thank you for your time. It's a pleasure, Luvuyo thank you very much for your time. You have been listening to this special Standard Being CB podcast coming to you from Davos, Switzerland, where as we know, leaders from around the world have been talking about how to find better solutions. And I have to say, when you walk the promenade that is the Main Street here in Davos, there has been a lot of conversation about the African continent. |
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30:31
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And I hope this is a conversations that continues into the future. Thank you for watching. Until next time, goodbye. |
