Our Burning Planet


State reliance on private finance won’t deliver sustainable infrastructure needed for a just transition

State reliance on private finance won’t deliver sustainable infrastructure needed for a just transition
The author argues the importance of investment in sustainable infrastructure, both for climate adaptation and for safeguarding economic development in South Africa. (Photo: crazzfiles.com / Wikipedia)

The question of climate justice has never been more urgent in South Africa.

Recent scientific evidence published by the Intergovernmental Panel on Climate Change (IPCC) on climate change mitigation has further solidified the need for urgent and ambitious climate action. In Africa, it is predicted that we are looking at a future with far more droughts, heat waves, and extreme rain events, with heating occurring at approximately twice the global rate of warming, unless international mitigation efforts are scaled up drastically. 

At the same time, while limiting further warming is critical, there is also an added urgency to prepare for the inevitable by adapting to climatic changes, highlighted by IPCC in its report on climate change adaptation and vulnerability published in February 2022. This report underscored the importance of investment in sustainable infrastructure, both for climate adaptation and for safeguarding economic development. The focus on private financing that underpins South Africa’s current infrastructure plans, particularly the recently gazetted National Infrastructure Plan 2050, is ill-advised as it will constrain the urgency and effectiveness of delivering sustainable infrastructure for upholding adaptation efforts and development objectives in a manner that supports tangible climate justice.

The Community Research Connections defines sustainable infrastructure as “designing, building, and operating structural elements that supports the day-to-day function, and influences the direction of human society in ways that do not diminish the social, economic and ecological processes required to maintain human equity, diversity, and the functionality of natural systems.” In addition to adapting to climate change, the provision of accessible sustainable infrastructure is required to meet core development objectives; such as integrating sustainable local economies in a manner that facilitates the creation of decent work and reducing poverty. Research has also shown that accessible public infrastructure, particularly in the care economy — such as in healthcare and childcare — promotes gender equity by reducing the care work disproportionately done by women. 

Despite the importance of sustainable infrastructure, current implementation and formulation of infrastructure development plans have been lacklustre at best. For instance, in August 2021 the Department of Public Works released a draft National Infrastructure Plan 2050 (NIP) for public comment, focusing on four areas of network infrastructure: energy, water, transport, and digital communications. It effectively cements the infrastructure plans outlined in the National Development Plan (NDP) and the Economic Reconstruction and Recovery Plan (ERRP).

The core problem with the proposed NIP is that it continues South Africa’s trajectory on a potentially climate destructive path that centres the unregulated private sector provision of public goods, at the expense of accessible and affordable sustainable infrastructure. In the water sector, for example, public-private partnerships (PPPs) are heavily promoted, overlooking key international failures in its implementation. PPPs in the UK, for example, were officially phased out from fiscal policy because of the resultant high fiscal risks through exorbitantly high costs and increased political risks. An official audit of the Private Finance Initiative, conducted in 2018, found that the cost of PPPs was at least 40% more costly than relying on public funding.

Despite the widespread positive rhetoric in the South African media about the potential for ‘innovative’ financing arrangements, like PPPs, that combine public and private financing, they are wholly inadequate financing vehicles for public goods like water and electricity. 

Commercially viable investments usually serve areas and communities that are more likely to be able to pay for those services. While user affordability is essential in the assessment of development impacts, getting the price right for the majority, particularly for low-income households, is simply not an incentive for the private investor if the alternative (high prices for a smaller population with the ability to pay) is more lucrative. 

Load shedding is here to stay for (at least) another year, while the government dithers on policy

Some PPP projects within the government’s newly created Infrastructure Fund portfolio are already mired in environmental concerns. The Mokolo Crocodile Water Augmentation Project, another megaproject estimated to cost R12.4-billion, has ceased construction because of legitimate appeals made by civil society organisations, Earthlife Africa and Groundwork, about the detrimental environmental impacts on local communities and the surrounding environment. The project is also meant to supply water to a local coal-fired plant, further entrenching coal dependence, which ultimately reduces water access for local communities. 

This private sector-focused infrastructure plan raises important concerns about climate justice, the need for radical economic and institutional changes, and the role of both the private and public sectors in delivering sustainable infrastructure. 

Effectively, there are two fundamentally different approaches to investing in sustainable infrastructure, and a climate just economy more broadly. The first amounts to a ‘greening’ of the current system, leaving the economy to look fundamentally the same but with new incentives and regulations, scaled-up private investment, and carbon pricing based on a continued scepticism of the role of the state. The other vision for a green economy is a much more radical plan for a restructuring of the economy along fundamentally different lines that mainstreams resilience and is not just the ‘greening’ of the failing system we currently have. It is one that wholly reorients our economic priorities while embracing the state’s capacity to plan and finance at the scale and pace that is now required.

South Africa is well on its way to entrenching the first approach. Climate finance (‘green finance’) has become an increasingly lucrative opportunity for greater private investments, particularly in infrastructure. At the same time, the role of the state, as outlined in the NIP, is minimal. It expects public investment to make up a dismal one-third of total infrastructure investment by 2030. 

Public infrastructure has taken a backseat, while new modes and models of private financing are prioritised. This ‘big finance’ approach sees the public sector as merely a coordinator of private investment, effectively expecting private investors to deliver on a just transition, which in the process diminishes the duty of the state towards people living in South Africa.

This approach is deeply flawed; the economic fallout from the Covid-19 pandemic has shown that the state is an indispensable actor in delivering a response to economic crises. It also reflects a dogged commitment to fiscal consolidation (or, ‘austerity’) by any means necessary, and entrenches the notion that there are not enough public resources for climate investment and we should instead rely on the private sector to deliver on much needed sustainable infrastructure. 

If adopted in its current form, the NIP 2050 will pave the way for a new era of privatisation of key public goods. It will secure enormous profits for private investors from the transition through ‘de-risking’ mechanisms that shift all forms of infrastructure development risks onto the fiscus, all in the name of development and climate resilience. These risks include guaranteeing revenue to private participants, whether it generates it or not, and offering government subsidies to lower the costs for private participants. 

Fundamentally, the government and other relevant policymakers must maintain a just transition as the primary purpose for its sustainable infrastructure drive, most notably through its Just Transition Framework. This entails closing critical gaps in both social and economic infrastructure provision to ensure it is accessible. This role should not be relegated to the whims of private finance, which has no incentive to meet developmental outcomes.

Worryingly, the NIP 2050 provides a shallow vision for sustainable infrastructure in the just transition, referring only to energy infrastructure, without addressing the question of access. A truly just transition not only requires a carefully managed shift away from fossil fuels and extractive industries, but it also requires a diversification of the economy in industries that are employment creating, such as investments in care infrastructure, and that ultimately achieve key development objectives. 

In addition, policymakers must seriously consider and implement local resource mobilisation to ensure government has a genuine choice in finding the best financing mechanism for infrastructure investments. Infrastructure funding donors should support the prioritisation of progressive taxation at the national and international level, curb illicit international flows, and provide grants, long-term concessional finance and loans from development finance institutions.

The stakes are too high to rely solely on the private sector to deliver on sustainable infrastructure. We need lasting structural change and a macroeconomic framework that explicitly supports a state-led approach to structural transformation through a just transition. The government’s responsibility for meeting obligations on human rights, poverty reduction, and climate justice more broadly, is an essential element of achieving a Just Transition. DM/MC

Sonia Phalatse is a Climate and Feminist Economics Researcher at the Institute of Economic Justice (IEJ). She writes this piece in her capacity as a member of Climate Ambition to Accountability Project — a joint project of the World Wide Fund for Nature (WWF), the SA Climate Action Network (SAcan) and the Institute for Economic Justice (IEJ). The project’s objective is to realise the effective participation of South African organisations in climate change governance to ensure enhanced climate policy ambition, implementation and accountability. The project is co-funded by the European Union. This article is the sole responsibility of the project team and does not necessarily reflect the views of the European Union.


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