How existing investment structures could help close SA’s infrastructure funding gap

South Africa faces a persistent infrastructure financing gap. The National Development Plan targets gross fixed capital formation of 30% of GDP by 2030, against actual investment of approximately 14% of GDP today.

This shortfall constrains growth, competitiveness and social inclusion. The problem is not an absence of capital: SA’s net domestic savings pool stands at about R10-trillion, yet less than R100-billion of it is currently deployed in infrastructure equity or debt. Despite repeated efforts to mobilise capital through public-private partnerships or international development finance, progress has been limited.

Recommendations from the G20’s Business 20 (B20) Finance and Infrastructure Task Force, presented at the November 2025 Johannesburg summit, underscore the need for emerging markets to work with domestic investors to create investment vehicles that channel local savings into infrastructure. For SA, the imperative is clear: we must find practical ways to unlock the capital already available within our own financial system and ensure it flows more efficiently into projects that support long-term economic resilience.

This is where existing investment products offer a way forward. By adapting familiar frameworks that already enjoy strong legal and market support, SA could accelerate the flow of domestic savings into infrastructure while waiting for additional new vehicles to be built.

Leveraging existing investment products in SA

In January 2023, the final amendments to Regulation 28 of the Pension Funds Act came into effect, formally broadening the definition of infrastructure beyond public-sector projects to encompass private-sector assets. The amendments set a prudential ceiling of 45% of total assets for domestic infrastructure exposure across all asset classes, with an additional 10% permitted for infrastructure in the rest of Africa. In the three years following these changes, little progress has been made in channelling pension fund assets towards actual infrastructure projects.

One way to facilitate flows into infrastructure projects is to provide investment products that are both tax efficient and investor friendly. By refining existing frameworks like Real Estate Investment Trusts (REITs), financing can be made more accessible to the infrastructure sector, opening opportunities for pension funds, corporates and retail investors.

A REIT is a listed company that owns income-generating property. Critically, REITs are tax transparent: they do not pay corporate tax on qualifying rental profits if they distribute at least 75% of their earnings to investors. Investors are then taxed at their marginal rate, avoiding double taxation.

This structure, combined with JSE listing rules on governance and disclosure, has helped SA’s REIT sector grow into a R450-billion market, funnelling savings into commercial property. The tax-transparency advantage falls most clearly to tax-exempt investors such as pension funds and collective investment schemes, where the pass-through structure avoids the double taxation that would otherwise erode returns.

The question is: Could this framework be modified to channel capital into infrastructure? The February 2026 Budget Speech provided a clear policy opening where Finance Minister Enoch Godongwana committed to explore options to support the expansion of data centres and related infrastructure in SA. It stated that data infrastructure “should be considered as critical as electricity, ports and transport networks”.

Practical measures to deliver on that commitment through a tailored REIT framework could include:

• Amending the Income Tax Act to extend REIT eligibility to infrastructure-like assets such as data centres, renewable energy leases, telecom towers and logistics hubs.
• Clarifying SARS guidance on the income treatment and deductibility of distributions from these assets.
• Embedding safeguards such as high payout ratios, leverage caps, transparent valuations and strong governance standards.
• Amending Regulation 28 to classify REITs that derive a prescribed minimum proportion of income from qualifying infrastructure within the 45% infrastructure sub-category, rather than the 25% property sub-category.

By amending the REIT framework, we could unlock investor capital for infrastructure investments, particularly in “new economy” infrastructure.

While the adaptation of REITs could deliver meaningful wins, they are not a silver bullet and should be seen as part of the solution, not the whole. REITs are best suited for assets where revenue is rental-like. For example, a data centre leased to tenants is comparable to an office building.

But REITs would not be able to easily hold toll roads or airports, where income comes from direct operating businesses (toll collection, landing fees) rather than rental arrangements. Where a REIT wrapper is not appropriate – such as for operationally intensive projects, debt-based exposures, and single-asset financings – project-finance SPVs and similar vehicles remain the more suitable structure.

Lessons from abroad

The US provides an instructive example. At inception in 1960, REITs were confined to conventional property. As investment pipelines expanded, the Internal Revenue Service progressively broadened the definition of “real property”. Through private letter rulings and, later, the 2016 Treasury regulations, REIT eligibility was extended to data centres, telecom towers, pipelines, storage terminals and electricity transmission lines. This incremental evolution allowed the US REIT market to scale into a $1.4-trillion sector.

Globally, purpose-built vehicles have successfully mobilised billions into infrastructure by offering favourable tax treatments and clear investor protections. Some examples include:

• Public Infrastructure REITs in China.
• Infrastructure Investment Trusts (InvITs) in India.
• Business Trusts and Singapore Real Estate Investment Trusts (S-REITs) in Singapore.
• Investment Trusts in the UK.
• Infrastructure debentures and funds in Brazil.

While long-term reforms will be needed to deepen SA’s product landscape, there are short- and medium-term wins on the table. Enabling SA REITs to invest in infrastructure could:

• Unlock domestic savings pools.
• Deliver stable, long-term income for SA investors
• Provide tax transparency and investor protections already established.
• Attract co-investment from global investors.

With cooperation between regulators, the tax authority, asset managers, the infrastructure sector and investors, REITs could become one of the catalytic instruments in addressing SA’s infrastructure financing needs. DM