Capital meets reform: Is South Africa investable again?

Skip to the sections you're most interested in

00:00 – Introduction 

Jeremy: South Africa’s economic reform story is no longer about intent, it’s about delivery.

This time last year, government committed over one trillion Rand to public infrastructure investment, the largest allocation of its kind in South Africa’s history.

The focus is on water, energy, freight logistics and ports, because these sectors form the bedrock of the economy and determine whether goods move, industries operate and investment flows.

For investors, three anchors matter most: sustained monetary discipline, fiscal consolidation, and reforms implementation.

This is No Ordinary Wednesday, our in-depth look at what’s driving markets, shaping the economy and changing the game. I’m Jeremy Maggs. In this episode we look at how far South Africa is on its reform journey.

The sentiment at Investec’s second SA Economic Reforms Conference was cautiously optimistic with key stakeholders from government, business, and civil society acknowledging infrastructure decline has been arrested and stabilisation achieved.

But the far harder phase, execution at scale, now begins. And the country’s reform ride is made bumpier by an increasingly uncertain global environment.

Rising geopolitical tensions, particularly between the US and Iran, are raising the risk of renewed inflation.

That matters for South Africa because it directly affects capital flows, interest rates, and the cost of funding infrastructure.

To discuss what progress has been made, where bottlenecks remain, and what it will take to unlock large-scale private investment, I’m joined by:

Rudi Dicks, Head of the Project Management Office in the Presidency, Martin Meyer, Head of Energy and Infrastructure Finance at Investec and Ayan Ghosh, Head of Cross-Asset Investment Strategy at Investec

02:10 – Are we seeing a genuine shift in investor sentiment towards South Africa?

Jeremy: So Ayan, I'm going to start with you and are we seeing, in your opinion, a genuine shift in investor sentiment towards South Africa, or do you think this is still cautious optimism given this very volatile and tricky global backdrop?

Ayan: Thanks Jeremy for inviting me to the conversation. As you mentioned, I think this is very much a cautious optimism at this point. What is very interesting to us is when you look at the foreign equity ownership for South Africa that' has increased to 32.7% in Februar 2026. That's the prestart of the war from 26.6% in January 2025.

That reflects more than a 20% increase and possibly the best uplift in the past decade. In terms of foreign investor interest in SA, we also did a bit of work, which shows a sustained uplift in South Africa's gross fixed capital formation to 4%, alongside a step-up in South Africa's real GDP to 2.5. That would represent a meaningful inflection point in SA's growth cycle and earnings visibility.

And that's possibly the catalyst for renewed foreign investor interest in South Africa. Critically achieving this is contingent on credible and sustained reforms implementation. I hope that answers your question.

03:15 – What are the clearest signs that reform is taking hold?

Jeremy: It does indeed. Rudi, let me bring you into the conversation. At Investec's SA Economics Reform Conference, you describe reform as, and I quote, “uneven and noisy but tangible.” What are the clearest signs in your opinion then, Rudi, that reform is starting to take hold?

Rudi: Well, I think probably building on what Ayan is saying, certainly the sort of sentiment, the sort of confidence that is there, the ability for investors to believe in us and that the sort of empty promises that have been made and never follow through are actually done, and you could pick that up in the reform programs. Energy for instance., a lot of work that has been done to unlock firstly in load shedding. Secondly, creating a competitive market and setting the rules for that competitive market.

What we know, for example, is that the reforms that we've introduced in that sector potentially has over R400 billion worth of investment in renewable energy or alternative energy outside of Eskom generation, similar in ports and rail, I think for us to be able to stitch up the Durban Container terminal with a private sector partner, hopefully we see results quicker than what we've seen previously.

You know, with that private sector partner improving the performance of that port, but certainly the point around third-party operators and private sector operators on the rail network. Our intention to go to market around with a number of other private sector deals within the rail and ports space. This is going to be quite an important part of what we are doing.

And I think these are the sort of confidence measures that are important. Those are the real things that show that the reform program can work and that we are wanting to attract private investment. Important thing about this is getting to sectors of the economy that we haven't really seen private sector investment there, where there's been monopolies, you know, incumbents like Eskom, incumbents like Transnet.

We've got to open up that space. We've got to allow for private investment and that's what's going to do the trick for us, in getting the sort of confidence and getting investment going.

05:10 – Where are we currently in the energy reform process?

Jeremy: So Martin, energy is arguably the most advanced reform area. How would you describe where we are currently from an energy reform perspective?

And I guess most people would want to know whether that word load shedding is going to darken our doors again, we hope not.

Martin: Jeremy, when we talk reform, I can safely say that the energy sector has been leaps ahead of all the other infrastructure reforms in the country. We haven't seen load shedding in almost a year, and Eskom can be sitting on a reserve energy margin of in excess of 5 gigawatts.

I believe at the moment we've seen and continue to see significant investment from the private sector with over 10 gigs of renewable energy generation already contracted for. This is a very, very large investment into the sector. We're still seeing a number of renewable energy projects coming to market, but the pace has slowed considerably.

What we are seeing is a big market shift from the predominantly government-led projects of five or so years ago to market where the private sector and specifically energy traders, are the biggest buyers of renewable power from new projects.

We are now seeing a situation where new projects are being led by the private sector first and bilaterally, and subsequently, we're seeing the energy traders buying majority of the power that's coming out of these projects. This is on the back of government shift from the single buyer model to a multi-buyer multi seller model.

This began with sort of removing the licensing threshold for private generation some four to five years ago, and will further evolve as trading rules in the trading market take shape.

The emerging trader market is particularly exciting as this should drive further reforms. As the market moves to competitive wholesale traded market, we anticipate first stages of the wholesale traded market to kick off later this year, and it's very, very encouraging to see the regulatory framework required for our energy market taking shape.

In addition, we're seeing significant amounts of battery energy storage being built, which enables efficient storage of excess power. So we are now able to store the excess energy generator during daylight hours and release it into the grid when it's most needed during peak usage periods.

This doesn't necessarily mean load shedding is over, but the energy market has come a long way since the beginning of load shedding, and we should be nowhere near the level of load shedding we saw two to three years ago.

07:30 – Is transmission becoming the biggest constraint to energy expansion?

Jeremy: So let me pick you up on two things. One is new projects, but risk associated with that. So we've got something in the region of 2 trillion rand in planned generation. A lot of talk about major grid expansion. Surely there is a danger that transmission now becomes a key bottleneck.

Martin: Jeremy transmission is the biggest single issue in rolling out renewable energy at scale. As I mentioned earlier, we've seen a slowdown in the pace of renewable energy projects coming to market, which is largely due to various conditions that need to be met before projects are able to connect to the grid.

These conditions are largely related to the inefficiency of the grid as it stands today and the immediate need for grid strengthening and expansion. In addition, there's no grid capacity in the North-Western Cape. These are the best parts of the country for renewable energy, and there is a significant number of projects waiting for new lines in order to evacuate power.

That said, Eskom has announced plans to roll out in excess of 14,000 kilometers of transmission lines over the next few years. That requires up to R450 billion with new capital to successfully get it right. The first phase for just over a thousand kilometers is already in the market, and we've seen a very good appetite to invest in this program, with many international and local players bid for the projects.

The program does seem to be slightly delayed, and I suspect this is due to a delay in getting the credit enhancement required for the projects to be finalised. The World Bank, together with the National Treasury, is putting together a guarantee product, which will negate the need for the National Treasury to stand behind Eskom’s obligations in each of these projects.

The DOE integrated resource plan prioritizes transitioning from coal to renewables and requires in excess of 18 gigawatts of new renewable energy power by 2030. This can only be achieved if we see more urgency in rolling out the required grid strengthening and expansion. Should we see delays in rolling out this transmission, we are going to see huge bottlenecks in meeting our key objectives.

09:20 – Can reform bring electricity costs down over time?

Jeremy: Ayan and Rudi, I’m coming to you in just a moment, but Martin, very quickly, the focus is also going to be a shift towards how we bring electricity inflation down over the next couple of years. Are you confident that the current reform path that you and Rudi referred to can actually achieve this?

Martin: So Jeremy, there are two factors that need to be considered here.

Do you have the integrated resource plan or IRP as it's commonly known, and the South African wholesale energy market. The IRP presents a plan to transition away from coal in the most economical way possible, while still obviously being cognisant of the fact that sustainability and social effects need to be taken into account.

As mentioned earlier, there's a large requirement for renewable energy in the IRP with renewable power being comparatively cheap at the moment. In addition, there's a requirement for gas-fired power, which is more expensive, but is necessary for balancing the power system as it can be ramped up quickly to deal with sudden shifts in demand.

Gas is also cleaner than coal and diesel, so it has a transitional angle to it. We must however be careful not to overbuild and rather use gas to transition to a renewable-dominant power system.

Then there's always the controversial subject of nuclear power. Nuclear power is part of the IRP and is the cheapest form of base load, given the life of the asset, which often spans over 60 years. However, it does come at a high upfront cost and plenty of regulatory hurdles.

We see this as part of a 10 to 15-year plan if feasible at all. But more importantly, and linking it to the new build of cost-effective power, SAWEM is creating a competitively traded multi-buyer, multi-seller energy market, which will better reflect efficient market pricing.

This will result in a pricing system, that better reflects the true cost of generation. This should therefore result in cheaper generation being dispatched first and then slowly move up the generation cost curve to a more expensive power ss demand grows.

As the power is traded in the open market, simple market economics will drive pricing down, and we should see a material decrease in energy inflation in the medium to long term as a result of this implementation.

We are all very excited to see how this comes to fruition.

11:15 – What does reliable energy mean for South Africa’s mining opportunity?

Jeremy: So Ayan, let's talk a little bit about consequences if we can.

If South Africa's energy supply is reliable and pricing for industrial users comes down, obviously our mining sector would be well positioned to take advantage of increasing demand, I guess, for critical minerals. Could you explain the significance of this opportunity to me?

Ayan: Thanks Jeremy. And as Martin mentioned, I think energy reforms in South Africa is no longer about ensuring the security of supply.

It is increasingly central to anchoring the next phase of industrialisation. South Africa has some of the world's largest reserves of critical minerals as we know, and it's tied to the energy transition, including PGMs, manganese, vanadium, chrome, titanium, and rare earths. When you look at some of these World Bank estimates, that suggests that demand for these key energy transition minerals could rise by four to six times from current levels by 2040 or 2050.

With some metals like lithium and cobalt, seeing even steeper increases. In that backdrop, reliable and competitively priced electricity changes the economics of mining.

Lower predictable tariffs, improve margins at mines and make brownfield expansions more financeable. I think South Africa's mineral endowment together with some of this large-scale grid investment that Martin's talking about, positions South Africa very well to capture this critical minerals upcycle over the next two decades.

13:25 – How critical is freight and logistics reform to growth?

Jeremy: Alright, let's move to freight logistics now, as I think it is the very heart of our country's growth story, really at the Economic Reforms conference, Juanita Maree, Chief Executive of the Southern African Association of Freight Forwarders, said 65% of South Africa's GDP is exposed to trade. Given the importance of the performance of ports, rail and corridors to South Africa's macroeconomic success. Maybe explain to us the mixed bag of results on this reform roadmap. Maybe we can start with the good and then sort of move down the scale if we can.

Rudi: I mean, the problem is that, let's be frank, let's talk about the most important part.

So if you're starting from pit to port, you've got to remove those goods from the pit, right? And that network is not up to standard. It’s been degraded. There's been a lack of Capex investment in the freight rail network, and that's for a whole series of different reasons that we can discuss Jeremy.

But the fact of the matter is that we've got to bring that up to standard. Bringing that up to standard means that you're able to open up the network transit, freight, rail. Third-party operators are able to ensure that they can compete with one another and move goods. That also makes costs much more competitive because, as it is a large chunk, 70% of our volumes that are, for example, moving between the most congested route is between City Deep and Durban.

We've got to take a lot of those goods, containerised goods, and put them onto the rail. So certainly I think there's an important incentive to be able to reduce that cost for us to be able to do that. Then, then of course. There's the importance of ensuring that being reduced competition within the port space.

Again, Durban Container Port Terminal, for example, is still the largest in Africa, and therefore you've got to invest significantly in infrastructure, in technology, you know, shipped to shore cranes, rubber tire gantries. They've got to be more efficient.

You've got old technology that's there, you've got old cranes that are there. Those are going to be important things that I think about TFR and the industry is looking at. The challenge that we've got to do is that all our indicators are, as you say, let's move on to the bad parts, which are all terrible, you know, where do we raise the money from to be able to ensure that we can invest in both rail and ports?

And that's where the private sector comes in. That's why we've got to think very differently. Traditionally, what we would've done is go out to the market, borrow money, Martin and Ayan would convince their debt component of the firms and buy up the bonds. We got to think about how we do this very differently with private sector operators where we potentially can concession it, think about how they can operate and run a more efficient port or rail corridor, for instance.

And that's the important part of how I think the reform has to unlock. We are moving in that direction. We issued, for example, a request for information during the course of last year on three key corridors, the manganese; iron core, the Natcore, and then of course the coal corridor. And there's been a significant amount of interest from both local and international operators in that space.

And certainly what we've got to do is take the next logical step and actually go to market. Pretty much the same thing that you've done for. This is all the same stuff that you've got to do, and I think that's going to be an important part for us to be able to do.

Geographically, we are the worst possible place, right? But now, given the sort of geopolitics, it depends on what happens. Many ships would have to pass our shore. We've got to find a mechanism of making a genuine regional hub in South Africa and that potential is there. And for us to be able to, you know, secure some of those shipping routes that come past our shore, but never dock here.

16:48 – Is government moving fast enough on reform implementation?

Jeremy: So encouraging Ayan but not all good news. So Rudi really back to you, national government and or central government, what is it doing to hasten the speed of reform and maybe make up for South Africa being a bit of a laggard on the continent for port and rail concessions?

Are you moving at a swift enough past, do you think?

Rudi: I suppose that many in the private sector would critique us for not moving fast enough. But to be frank, I think there are complexities in some of these deals. We have not done them ever before and I think we've got to get them right. They're quite also highly competitive.

There are many interested parties who want to do this. Let me just give you one example. The Durban container terminal two, we'd spent an inordinate amount of time getting it to market, getting the RFP correct, and it was contested in court and that put us out by another two more years. Eventually, of course, I think that sense prevailed and during the latter part of last year, the applicant who had contested this had agreed that the final judgment out of the high court was accepted and they would move ahead. So I do think that these are the sort of risks that are there. What we've got to do is design it sufficiently so it's bankable.

That's the most important part. And Ayan’s point about having a rules-based tariff access rules, these are quite critical. Because if you don't set that out from a regulatory point of view, from the outset, they're not bankable. You know, you can't go to a bank and say, look, I need funding for this if the rules are not clear or if projected revenues are ahead or not very clear on how they'll be derived.

So I, I do think that these are going to be an important. So we've got to spend as a sort of state or regulator in this instance, we got to spend an inordinate amount of time in designing it correctly, or they fail. We've got good examples of them. By the way Transnet has, for instance, issued RFPs and they've not always succeeded, and that's the critical thing.

We've also got to think through how we deal with this in a different way. I mean, there is this the view that perhaps we should go for the sort of Durban Container Terminal kind of PSP’s because the design of PSP’s is quite an important part Jeremy. You could design it where you sell off an equity stake, which is what we've done at Durban Container Terminal Two.

I don't think that's the efficient way of trying to get into a partnership. In a view, I think that that much of what we think of in OV is a concession it. Give a long-term concession.

Let the operator decide on how best they will run, whether it's a rail corridor, whether it's a port. Let them decide on that because I think that in itself is a better and more efficient way, and there are ways that you can recover ofcourse, concessioning fees upfront, you know, returning the asset to a better state than what it was before. And we've seen that concession models do work. We've got good concession models in South Africa. The road network is a good concession model where Sanral has given out long-term concessions to road operators.

So, I think we've got to just make sure that we design these things correctly. We've got to make sure that it's bankable. We have to have an iterative process with the banks, with different stakeholders to make sure that everyone is satisfied and that we then go to market. So I suppose the business colleagues or the private sector guys will say, you slow.

I would rather say can we get it bankable…

19:37 – What will enable large-scale private investment in infrastructure?

Jeremy: Ayan, let me use a word from a very famous movie “show me the money”. We've seen increased private sector participation in the system as Rudi was alluding to. What factors do you think are then enabling the much needed investment in ports and rail and to his point, I mean, which corridors do you think would benefit the most?

Ayan: Thanks, Jeremy. I think after years of stalled progress, what we are beginning to finally see is institutional capacity being rebuilt in South Africa, and regulatory frameworks being clarified, and hopefully that should lead to a growing pipeline of private sector involvement emerging across some of the corridors that Rudi mentioned.

I think while we are in the early stages process for this to scale- what I do think is needed is private operators and some of the financiers of this reform program need predictable rules of the game. Clear tariff structures, access rights, rewards and penalties in the right way, and some of these dispute resolution mechanisms.

It's very clear that private sector participation in container terminals is beginning to progress. What we also heard at the conference is some of these iron ore exporters led by Kumba are pushing for an integrated session to Saldana concession, and that spans from the pit to the port, the full value chain.

And hopefully that becomes a template for corridor-based concessions more broadly. So yeah, I think we are in the early stages. We remain hopeful, but at the same time, what I must admit is the weakest link here remains local government where you've got municipal balance sheets that are very stressed, service delivery that's inconsistent, and infrastructure maintenance that has been repeatedly crowded out.

Stabilising these municipalities is essential if the broader logistics and infrastructure reform we need to build.

21:40 – How urgent is South Africa’s water crisis?

Jeremy: Alright, so Rudi, let's bring in water now because it's increasingly looking like South Africa's Achilles heel when it comes to reform. Around 59% of municipalities are effectively insolvent. How urgent then is this crisis? And maybe tell us what you think the government can do at a national level, where you sit, to restore some degree of confidence and I guess functionality.

Rudi: It's a tricky one because let's break up water, right? There's bulk water, right, or raw water as it is, and that in itself is some area that I think we've made some significant progress. We've established, of course, a national water resource infrastructure agency. That's an important step to be able to ensure that we can lock in private investment at a bulk water level.

Also, regulatory rules are important, for example, around how we deal with pricing raw water. The biggest constraint of water right now is not there. The biggest constraint is at a distribution level, and as you said, at the municipal level.

Of the 144 water services providers, that's 144 across the municipal system, 105 of them do not comply with the most basic conditions and that is the drop reports, blue drop, green drop, and no drop reports. And basically, those pre-reports are; blue drop is water quality. Green drop relates to wastewater treatment, and the no drop is non-revenue water -how much water leaks without us being able to know that.

So those are the drop reports, and certainly I think what we see in the latest report of the drop reports is that it's gotten worse. So we've got to do an intervention.

Why I say it's complex is because municipalities have different sets of powers and functions relative to provincial and national government, right... that's their competency of work. You can't do something similar as we've done in Transnet or in Eskom.

You got to use the particular provisions of the law, section 139, even if you want to intervene, or you got to develop an intergovernmental framework and relations to be able to deal with some of these things.

It's a bit more complex, but we got to address it, a crisis, for example, in Johannesburg, crisis in many of the 105 municipalities where there's no service provisions that are effectively compliant to the standards that we've set.

One of the things that we have introduced and the president has made this really clear in the state of the nation was that the Water Services Act, for example, is going to be amended, and the water services act basically says that if we do not comply with water quality, water standards and no drop, then you are going to take away your license.

So we've introduced a licensing regime pretty similar to what NERSA does for energy, you know, so the National Energy Regulator has a licensing regime for all licensees, whether you are at a wholesale or at a retail level, this will be the same things.

And if a water service provider and authority doesn't comply with the, with the water licensing provision, that license will be taken away.

24:14 - Where are the biggest risks and opportunities in water investment?

Jeremy: Ayan having said that, water though would be an underinvested infrastructure opportunity surely, maybe it would be useful for us if you were to expand on the risks and the opportunities again, from where you sit from an investment perspective.

Ayan: I think when you look across Africa and in South Africa as well, the water sector represents a systemic macroeconomic risk and a significant under-invested infrastructure opportunity. Water is simultaneously a constitutional right and a critical production input where two-thirds of the water usage is concentrated in agriculture, and that directly links to food security and to inflation as well.

We've seen performance deteriorating across multiple dimensions, and that includes supply, reliability, water quality, financial sustainability, and governance across most municipalities. The financial distress is very much widespread with more than 50% of municipalities effectively insolvent. We think that the private sector participation in the water reform space has been constrained by below-cost tariffs, weak utility creditworthiness, political resistance, and regulatory uncertainty. That said, billions of rands in water and sanitation could be unlocked should some of these projects be ring-fenced and tariffs are cost reflective.

What also may be important is, as Rudi mentioned, reducing usage of some of this non-revenue water in the whole process.

25:47 - What is the single biggest constraint to unlocking investment?

Jeremy: Gentlemen, a lot to digest and I want to start bringing this conversation to an end and maybe one final question to all of you. And that's the one constraint that, if resolved, would unlock large-scale private investment into South Africa's infrastructure reform project.

And maybe let's go back to you, Martin.

Martin: So for me, Jeremy, and both Rudi and Ayan have touched on it, it's one word, it's municipalities. For me, the structural issues within municipalities, the bankability of municipalities, are really hindering a lot of infrastructure development within the urban sector.

What we are seeing in the transmission space with the credit guarantee vehicle is a very exciting space. The thinking is that the credit enhancement to Eskom will then be rolled out into municipalities, which will then make a lot of the municipal projects or PPPs bankable. For me, it's bankability Jeremy. If we can come up with a solution to make municipalities bankable, I think we're going to see a major shift in reform in the country.

Jeremy: Rudi.

Rudi: Martin is spot on. If I could disclose the sort of project pipeline that exists in the municipal space, that's where the trillion rand worth of investments that we can unlock, right? And the significant opportunities in roads, in civil, in other parts of civil, in water, in energy distribution, for example, is significant.

You, you got to design it so that we think through away from a traditional model where the state or conditional grants pay for that. How do we develop and create bankable projects that allows for the private sector to come into water or electricity distribution and that I think there's a significant project pipeline as I say, we've got to get it to bankability, and that for me is the most important part, and that's what can unlock the sort of growth that we require in our economy.

Jeremy: And Ayan, all of this against the backdrop of politics and we do have a transitioning political landscape in this country. From one party dominance to coalition politics, do you think we will see an increase in transparency and in performance accountability?

Ayan: Thanks Jeremy and I completely echo Martin and Rudi’s views. As you mentioned, the political fragmentation in South Africa has posed serious risks to stability and service delivery over the past decade. Against this backdrop, I think the GNU is a potential turning point in South Africa's political trajectory.

It signals respect for the constitution, a new level of political maturity and cross-party cooperation, all of which help to lower perceived political risk in South Africa. Under the GNU what we've achieved in South Africa is a credible macroeconomic framework, disciplined monetary policy, a GNU-endorsed budget, and hopefully planned fiscal anchors going forward.

The GNU does provide the political umbrella for structural reforms as Rudi and Martin have mentioned before.

What is increasingly clear is looking forward, is that the South Africa's reform agenda is biased towards reorienting the economy towards its cross fixed capital formation and prioritising productive investment over consumption ultimately, and we continue to hope this will uplift South Africa's GDP growth to 3% over the next 5 to 10 years.

While the reform journey is far from complete, this does give us a sense of direction and critically a sense that investors are starting to notice and hopefully foreign investors reprice South Africa accordingly in the next 5 years.

Disclaimer

Focus and its related content is for informational purposes only. The opinions featured on the site are not to be considered as the opinions of Investec and do not constitute financial or other advice. The information presented is subject to completion, revision, verification and amendment.

Although information has been obtained from sources believed to be reliable, Investec Securities Proprietary Limited (1972/008905/07) or its affiliates and/or subsidiaries (collectively “ISL”) does not warrant its completeness or accuracy. Opinions and estimates represent ISL’s view at the time of going to press and are subject to change without notice. Past performance is not indicative of future returns. The information contained herein is for information purposes only and readers should not rely on such information as advice in relation to a specific issue without taking financial, banking, investment or other professional advice. ISL and/or its employees and/or other Investec Companies may hold a position in securities or financial instruments mentioned herein. The information contained in this document alone does not constitute an offer or solicitation of investment, financial or banking services by ISL. ISL accepts no liability for any loss or damage of whatsoever nature including, but not limited to, loss of profits, goodwill or any type of financial or other pecuniary or direct or indirect or consequential loss howsoever arising whether in negligence or for breach of contract or other duty as a result of use of the reliance on information contained in this document, whether authorised or not. This document may not be reproduced in whole or in part or copies circulated without the prior written consent of ISL.

Full Investec Bank Limited disclaimer