South Africa’s Strategy to Close the Infrastructure Funding Gap at G20 Dialogue

South Africa is advocating for innovative financial solutions to bridge the massive infrastructure funding gap, which is estimated at $1 trillion to $1.5 trillion annually. Speaking at the G20 Infrastructure Investors’ Dialogue last Thursday, Deputy Finance Minister David Masondo highlighted blended finance as a key mechanism to attract private sector participation in infrastructure development.

Held at Freedom Park Museum in Pretoria, the event emphasized scaling up sustainable infrastructure investment through public-private collaboration. It gathered G20 members, global financial institutions, and long-term investors, reinforcing South Africa’s commitment to its 2025 G20 presidency theme: Solidarity, Equality, and Sustainability.

The Urgent Need for Infrastructure Investment

Masondo pointed out that global infrastructure investment is lagging far behind demand, with only $2.5 trillion allocated annually, well below the required levels. South Africa’s National Development Plan (NDP) sets a 30% investment-to-GDP target, with the public sector expected to contribute one-third of that. However, current spending falls significantly short, making private sector involvement crucial.

“This Dialogue is borne out of the realization of the extent of infrastructure funding requirements and the shortfall in available funds,” Masondo stated.

The Role of Blended Finance

Blended finance is increasingly being seen as a game-changer for infrastructure development. It combines public and private investment to de-risk projects, making them more attractive for commercial investors.

“Blended Finance can be a useful tool for crowding in additional commercial finance and making otherwise non-viable projects viable,” Masondo explained.

However, he cautioned that blended finance alone cannot carry the burden of infrastructure funding. Instead, it should be viewed as part of a broader financial solution that includes strong governance, regulatory frameworks, and political will.

Challenges in Scaling Blended Finance

While promising, blended finance remains underutilized due to the complexity of aligning diverse stakeholders, including:

• Private sector investors seeking profits

• Governments aiming for cost-effective public services

• Development finance institutions focused on long-term socio-economic impact

Alessandro Scalco, Blended Finance Lead at RMB, noted that South Africa has immense potential to lead in this space. “The country’s biodiversity and developmental needs make it fertile ground for pioneering financial innovations,” he said.

De-Risking Investments to Attract Private Capital

One of the key barriers to private investment in infrastructure is risk. Masondo pointed to initiatives such as:

• South Africa’s pilot Credit Guarantee Vehicle

• World Bank’s Multilateral Investment Guarantee Agency facilities

“There is a need to systematically de-risk large infrastructure government programs,” he emphasized.

The Road Ahead

The outcomes of this G20 Dialogue will be incorporated into a G20 Infrastructure Working Group report, focusing on strategies to de-risk infrastructure investments in developing economies.

Masondo urged stakeholders to take a comprehensive approach, stressing that even the most innovative financial instruments will fail without:

• Strong governance

• Regulatory certainty

• Political commitment

• Institutional capacity

With South Africa gearing up for its 2025 G20 presidency, its leadership in infrastructure finance innovation could set an important precedent for other emerging markets.

Can South Africa Turn Blended Finance into a Real Solution?

While the concept of blended finance is gaining traction, its success will depend on collaboration between government, investors, and development institutions. The ability to effectively align financial incentives with national development goals will determine whether South Africa can bridge its infrastructure funding gap and pave the way for sustainable economic growth.

{Source IOL}

Follow Joburg ETC on Facebook, Twitter , TikTok and Instagram

For more News in Johannesburg, visit joburgetc.com