New financing model set to catalyse infrastructure spending in SA

A quiet but decisive shift is underway in South Africa’s infrastructure landscape centred around the newly announced Credit Guarantee Vehicle (CGV) – a first-of-its-kind mechanism designed by National Treasury and the World Bank to unlock large-scale infrastructure financing by replacing the sovereign guarantees traditionally provided for these transactions.

“With stakeholder engagements now at an advanced stage and Phase 1 of the Independent Transmission Programme (ITP) set to be its first beneficiary, the CGV represents the most significant reform to the country’s infrastructure financing framework in over a decade,” states Bukiwe Pantshi, Head of Infrastructure at Investec Corporate & Investment Bank.

Under President Ramaphosa’s ambitious economic reform agenda aimed at boosting growth and improving service delivery through public-private-partnerships (PPPs), the government has committed some R1 trillion over the medium term solely to infrastructure development. 

“These reforms aim to create a conducive environment for PPPs, with spending focused primarily on critical sectors like energy, logistics corridors, and water and sanitation to address the bottlenecks that have held back South Africa’s growth potential however, the state’s limited fiscal space to take on more debt has emerged as one of the major challenges in realising this infrastructure development plan.” adds Pantshi.

While a handful of procurement processes through Request for Proposals (RFPs) were launched on back of these reforms, Pantshi highlights that most have not progressed to the implementation stage for reasons related to regulatory hurdles, risk assessments, and access to finance.

To create a more supportive environment, the CGV seeks to derisk large-scale infrastructure projects and attract the capital investment needed to achieve the country’s economic growth ambitions.

Unveiled during the Medium Term Budget Policy Statement (MTBPS) presented by Finance Minister Enoch Godongwana in November, Pantshi explains that the government continues to take bold steps to accelerate infrastructure development by crowding in private capital and promoting alternative delivery mechanisms. 

Structurally, the CGV will mobilise private sector investment to guarantee large-scale infrastructure projects. The CGV will operate as a private, special-purpose, non-life insurance entity with a AAA rating. Its shareholders will include the South African government through the National Treasury, the World Bank, Multilateral Development Banks (MDBs), and private investors.

“While the market can source cover from the private sector, it is costly, limited, and therefore does not appropriately mitigate key risks. The cost of the cover is passed to the procuring entity as part of the tariff charged for the service, which will reduce the cost-saving expected in a PPP structure,” explains Pantshi. 

Despite the costs associated with the CGV, Pantshi confirms that the composition of the shareholders will ensure the cost structure supports the broader value-for-money benefit expected in PPPs. “In addition to reducing reliance on sovereign guarantees, the CGV will improve access to financing. More importantly, financiers will have a backstop to a bankable instrument.”

An initial R2 billion from National Treasury will be injected into the CGV to focus on expanding electricity transmission under the ITP Phase 1, critical for energy security. Once fully operational, the CGV will need to scale and will then also be made available to infrastructure partners for transport and water projects.

Beyond the initial rollout, Pantshi says the CGV will need to be scaled up significantly to fully guarantee the long pipeline of infrastructure projects.

“This includes the anticipated rail corridor Private Sector Participation (PSP) projects, which can only progress with a guarantee similar to the CGV given National Treasury’s fiscal constraints.”

Other projects that could benefit from the CGV include the Umdloti and Umkomaas Wastewater and Re-use PPP Project. 

“This project in particular was difficult to assess from a financier’s perspective due to the inability to mitigate offtake payment default and termination risks,” explains Pantshi.

Investec believes the CGV represents a transformative shift in how South Africa will approach infrastructure financing. It is not just another financial instrument; it’s a call to reimagine how South Africa builds its future through accelerated infrastructure development and stronger collaboration with capital investment stakeholders.