Corridor Financing

Corridor Financing – Key To Unlocking Regional Economic Growth

Aadil Cajee, Head of Infrastructure at Standard Bank

As we look to rebuild our economy in the wake of the devastating impact of the COVID-19 pandemic, corridor financing and investing in productive infrastructure will be key to economic recovery and growth not only in South Africa, but across the African continent.

Economic activity and connectivity are inextricably bound together. Thus, any plan to stimulate economic growth requires investment in transport infrastructure to feature prominently. Without reliable routes to market, we will not be able to attract the investment required to put us on a road to long-term, sustainable economic growth.

Corridor financing therefore emphasises improvement that promotes economic activity and growth all along a transport value chain.

President Ramaphosa is spot on in his vision of using infrastructure development as the flywheel to economic recovery and growth. Last year, the South African government announced an ambitious infrastructure fund which plans to utilise R100 billion over 10 years as seed capital to leverage R1 trillion worth of infrastructure investment.

There is now general consensus that South Africa’s economic recovery should be led by infrastructure development and maintenance. However, creating investor confidence will be crucial to attracting the investment required to finance these projects.

In this context, government needs to create transparent and clear long-term frameworks around infrastructure development and investment. Investors want to see stability in planning and the potential for a positive return. Investors will not take a 5-year view on return, but more likely a 10-to-20-year viewpoint. Thus, long term planning stability is essential.

Importantly, the South African government has also announced 55 bankable projects that are ready to go to market. Government must ensure that there is a steady supply of projects, consistently being brought to market to attract investors and keep them here.

Realising Africa’s potential

There is also huge potential for growth across the African continent in the wake of the Africa Continental Free Trade Area (AfCFTA) coming into existence. As the AfCFTA gains traction it should improve trade and competitiveness, giving Africa more relevance in global trade negotiations.

However, it is pointless to have great trade agreements if we cannot efficiently move goods to market. For the AfCFTA to succeed, focus must be placed on developing and upgrading the transport value chain across the continent.

Investing in port infrastructure does not only have a considerable downstream impact on the economy of the host nation, but it also has an enormous impact on neighbouring countries who make use of the port.

The Maputo corridor is an excellent case study of what can be achieved. Standard Bank has been tracking this development for almost 20 years. Our involvement commenced in 2003 following the Mozambican government’s decision to award a private concession for the Maputo port. At the time, port volumes were less than 10% of those pre-civil war.

The upgrading and expansion of the port infrastructure, as well as the development of transport nodes – including the N4 highway in South Africa, created a much shorter distance to market for South African products, including commodities and motor vehicles.

The development of the N4 highway linked historically rich mining towns such as Middleburg and Witbank to the Maputo port, allowing large growth in the export of commodities due to the simpler route to market. In turn, all the towns along the transport route saw a pickup in economic activity. Ultimately, one value chain was created that was interdependent for its success. This also highlights the importance of developing and industrialising the downstream value chain.

Aadil Cajee, Head of Infrastructure at Standard Bank

At Standard Bank, we see the transportation value chain as foundational in our business strategy. We have deep sectoral experience and have been involved in financing and advising on a range of infrastructure projects across the continent.

This includes the Maputo port, the expansion of two ports in Cote d’Ivoire, the upgrade of rural roads via the Kenya Roads Programme in East Africa, and the upgrade of the Beitbridge border post between South Africa and Zimbabwe that will pave the way for enhanced integration and development in the SADC region.

Standard Bank Group structures and provides appropriate financial solutions to fund infrastructure projects and provide lending facilities to entities operating within key infrastructure subsectors. Our on-the-ground presence and extensive African footprint provides an unrivalled capability to deliver future growth prospects and we are well positioned to assist African governments and businesses access global value chains and investment.

There can be no doubt that corridor financing and investing in the transport value chain is key to economic recovery and growth not only in South Africa, but across the African continent. It will be vital to unlocking the benefits offered by AfCFTA and other trade agreements. There is no shortage of potential capital to be invested in this space, however government must work to create regulatory certainty and ensure that there is a steady flow of projects to market.

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