Be creative in finding solution to crisis seems to be the motto and the approach of the Development Bank of South Africa (DBSA) in effectively converting the economic crisis due successive lockdowns and contraction of the South African economy owing to the global pandemic, into opportunities.
While many countries rely on bailouts and capital injections into the corona-hit economies, Mohan Vivekanandan, an executive member of the Development Bank of Southern Africa, is in a mission to develop and deploy such innovative methods, apparently, to turn crisis into an opportunity.
Instead of bailouts and capital injections into the economy, the modus operandi seems to make substantial investments in the Green Bond, Pension Funds and Alternative Investment.
Investment strategies
One of the sectors that DBSA has made substantial investments is South Africa’s Energy Sector which needs capacity boosting. The bank has funded five of the Independent Power producers to add to the generation capacity. The investment is close to 67 billion rands, almost 500 million dollars.
Social Infrastructure is another sector, where DBSA invests in private hospitals, private provision of education and student accommodation as well as in social housing schemes, particularly, for lower income segments of the South African economy.
To help economic recovery, the DBSA will commit about a billion dollar investment in infrastructure in terms of long term lending every year. Two growth sectors for the bank are Energy and Social Infrastructure.
In the infrastructure sector, the bank will roughly invest a third of the funding in municipalities and in their critical infrastructure like water and sanitation, electricity distribution and rolling out the roads networks to support the urbanisation and rapidly expanding urban population and townships.
Regional integration
Needless to say that networking and regional integration plays a crucial role in sustainable economic growth and establishing and maintaining vibrant network of supply chains.
In order to reap the benefits of the African Continental Free Trade Agreement, DBSA envisages substantial investments in regional integration in general and in border post, railway links, road links between South Africa and the region in particular to ensure that South African goods could easily be exported into the rest of the continent.
Green Bonds
There are investors and institutional investors interested in investing in sustainable infrastructure, including climate financing. The bank will also invest in projects such as renewable energy, green buildings, and water and sanitation infrastructure.
In addition, the bank would also deploy new technologies and embrace new trends like crowdfunding. Through events such as the Pension Funds and Alternative Investments Africa, DBSA seeks to share of industry knowledge and expertise with the stakeholders.
From a broader perspective, the bank consider infrastructure as an asset class, which generates constant stream of income over a long period of time and this is exactly the assent class that institutional investors are interested in and looking for.
Events have been designed such a way to tap into these sources of funding (like those of Pension Funds) with a possible longer tenure to facilitate work and to build up symbolic partnership between bank, funders as well as with the institutional investors, who could provide the long term capital for projects , while working closely with project sponsors.
In essence, such events are, more or less, like a marriage among three stakeholders in the process. It is obvious, that such an innovative approach to financial crisis management would, inevitably, result in creating not only win-win situations for all the stakeholders in the development activities, but also lead the economy towards a healthy recovery.
That recovery is neither led by successive bailouts and costly capital injections, nor by a punitive regime of austerity measure like public spending cuts that have long terms adverse repercussions such as slowing down the pace of GDP growth.
