The role of the private sector on infrastructure financing and development in South Africa
Date
2020
Authors
Mabuea, Buhle
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Abstract
Like many emerging market countries globally, South Africa is faced with two major infrastructure challenges, namely: major infrastructure backlog and the availability of funding required to reduce this backlog. This study has been set out to achieve two main objectives using an Autoregressive Distributed Lag (ARDL) approach: to examine the relationship between private infrastructure financing and infrastructure development in South Africa and also to examine the relationship between financial development in South Africa and private infrastructure financing through investments. This study is based on the assumption that the two categories of the financial markets i.e the Bank Based and Market Based Financial Development (BBFD and MBFD) have an impact on private infrastructure finance; thus for the purposes of this study financial markets was split into the BBFD and MBFD to identify which sector of the financial markets is more influential in improving private financing of infrastructure so as to establish a guideline in terms of which category is worth exerting more work in the future.
The findings for objective one indicate that private sector infrastructure financing has a fairly strong correlation relationship with infrastructure development in South Africa. The ARDL indicates that in both the long run and the short run the coefficient of private infrastructure financing was found to be positive but statistically insignificant with only episodic infrastructure finance by private financiers in the previous years.
Findings for objective two indicate that Bank Based Financial Development (BBFD) has a statistically significant but negative effect on the level of private infrastructure financing in both the long and the short run. In contrast, Market-based Financial Development (MBFD) was found to have a positive but statistically insignificant effect on the level of private infrastructure financing in both the long and short run. The Gross Domestic Savings (GDS) appeared to be significant in increasing infrastructure finance.
From the results, it is clear that South Africa needs to expand private sector participation in infrastructure financing. Given South Africa’s existence of fairly welldeveloped financial markets, one would expect the country to have significant infrastructure investment flows. However, it is evident that more work is required on further developing the South African financial markets by ensuring that the requirements of the alternative infrastructure financing options are strictly followed and met in order to give the maximum benefits of infrastructure finance in the development of infrastructure.
Furthermore, the study recommends policy changes that will assist in enhancing the private sector’s participation in infrastructure finance.
Description
A research report submitted in partial fulfilment of the requirements for the degree of Master of Management in Finance and Investment to the Faculty of Commerce, Law and Management, University of the Witwatersrand, Wits Business School, Johannesburg, 2020
Keywords
Private Sector, infrastructure Financing and Development in South Africa, Private infrastructure financing, Infrastructure development