Final presentation for Financing for Development Course

1. Financing Development!
South Africa!
!
Robert Longhi!
December 2015!
Financing
Development:
South
Africa
1

2. Financing Development : South Africa!
Financing Development: South Africa! 2

3. The purpose of this presentation is to illustrate how the Government of
South Africa has been able to find ways to finance their future development
programs through:!
* 1. mobilizing domestic resources!
!
* 2. tailoring energy procurement programs by piloting private finance into
local community development schemes!
South Africa has embarked on ambitious programs for investment in
infrastructure and energy. These programs run parallel with the National
Development Plan 2030 which incorporates the 17 Sustainable
Development Goals arising from the UN Development Summit of 2015. !
Introduction!
Financing Development: South Africa! 3

4. * Population: 55 million!
* Languages: 11 official languages of which English and Afrikaans being
the most common!
* Ethnic Groups: Black 80.2%, Coloured 8.8%, White 8.4%, Asian 2.5%!
* Government: Constitutional Parliamentary Republic !
* Nominal GDP: $US 324 billion (35th)!
* Per capita GDP: $US 5,902 (88th)!
* Tax revenues: $US 73 billion!
* Overseas Development Aid: $US 1.4 billion!
* Poverty count: 53.8% in 2010, 66.6% in 2005!
* Life expectancy at birth: 57 years!
* Gini coefficient: 63.4 in 2011 – extremely high!
South Africa : Country Profile!
Financing Development: South Africa! 4

5. * Net ODA received (% of GNI) in South Africa was last measured at 0.36% in 2013,
according to the World Bank amounting to aproximately $US 1.4 billion!
!
* Net (ODA) consists of disbursements of loans made on concessional terms (net of
repayments of principal) and grants by official agencies of the members of the
Development Assistance Committee (DAC), by multilateral institutions, and by
non-DAC countries to promote economic development and welfare in countries
and territories in the DAC list of ODA recipients. It includes loans with a grant
element of at least 25 percent (calculated at a rate of discount of 10 percent)!
!
* The largest donor of ODA has been the EU which has accounted for 70% of all
ODA to South Africa from between 1995 and 2013!
!
* South Africa is now in the upper middle income (MIC) category and as such
must now rely on it’s own domestic resources mobilization (DRM) to fund it’s
development through the National Development Plan 2030!
Overseas Development Aid (ODA)!
Financing Development: South Africa! 5

6. The Millennium Development Goals (MDGs) are the eight international
development goals adopted by 189 countries as a result of the United Nations
Millennium Declaration in 2000 committing all member countries by 2015 to!
!
* 1.Eradicate extreme poverty and hunger!
* 2.Achieve universal primary education!
* 3.Promote gender equality!
* 4.Reduce child mortality!
* 5.Improve maternal health!
* 6.Combat HIV/Aids, malaria and other diseases!
* 7.Ensure environmental sustainability!
* 8.Develop a global partnership for devevelopment!
The MDG’s, however, spoke about social outcomes but did not really address the
issue of economic outcomes.!
Millennium Development Goals (MDG)!
Financing Development: South Africa! 6

7. The UN adopted a resolution in 2015 committing it’s members to the pursuit of 17 SDG’s as follows:!
!
* 1. Poverty – end poverty in all it’s forms everywhere!
* 2. Food – End hunger, achieve food security and improved nutrition and promote sustainable agriculture!
* 3. Health – ensure healthy lives and promote well-being for all at all ages!
* 4. Education – ensure inclusive and equitable quality education and promote lifelong learning opportunities for all!
* 5. Women – achieve gender equality and empower all women and girls!
* 6. Water – ensure availability and sustainable management of water and sanitation for all!
* 7. Energy – ensure access to affordable, reliable, sustainable and modern energy for all!
* 8. Economy – promote sustained, inclusive and sustainable economic growth, full and productive employment and decent
work for all!
* 9. Infrastructure – build resilient infrastructure, promote inclusive and sustainable industrialization and foster innovation!
* 10. Inequality – reduce inequality within and among countries!
* 11. Habitation – make cities and human settlements inclusive, safe, resilient and sustainable!
* 12. Consumption – ensure sustainable consumption and production patterns!
* 13. Climate – take urgent action to combat climate change and it’s impacts!
* 14. Marine systems – conserve and sustainably use the oceans, seas and marine resources for sustainable development!
* 15. Ecosystems – protect, restore and promote sustainable use of terrestial ecosystems, sustainably manage forests,
combat desertification and halt biodiversity loss!
* 16. Institutions – promote peaceful and inclusive societies for sustainable development, provide access to justice for all
and build effective, accountable and inclusive institutions at all levels !
* 17. Sustainability – strengthen the means of implementation and revitalize the global partnership for sustainable
development!
The Sustainable Development Goals (SDG)!
7

8. The South African government released it’s National Development Plan Vision 2030 (NDP) in
November 2011 that included integration of the 17 SDG’s !
!
The NDP identified a failure to implement policies and an absence of broad partnerships as the
main reasons for slow progress and set nine primary challenges below:!
!
* 1. Too few people work (SDG 8)!
* 2. The quality of school eduction for black people is poor (SDG 4)!
* 3 .Infrastructure is poorly located, inadequate and under maintained (SDG 9)!
* 4. Spatial divides hobble inclusive development (SDG 9)!
* 5. The economy is unsustainably resource intensive (SDG 15,17)!
* 6. The public health system cannot meet demand or sustain quality (SDG 3)!
* 7. Public services are uneven and often of poor quality (SDG 16)!
* 8. Corruption levels are high (SDG 16)!
* 9. South Africa remains a divided country (SDG 4,5,8,10)!
The National Development Plan!
Financing Development: South Africa! 8

9.
* Given the rather ambitious targets set out in the NDP it is apparent that the ODA
on it’s own is insufficient to finance the achievement of the SDG’s within the NDP
and hence the government has embarked on the following measures:!
!
* i) increasing the tax base of it’s population!
!
* ii) introducing new tax revenues!
!
* iii) leveraging development finance institutions (DFI) in attracting private
investors in energy and infrastructure projects!
The above measures (i,ii,iii) are known as domestic resource mobilization (DRM)
and will serve to finance the NDP as well as the National Infrastructure Plan 2012.!
Financing the NDP!
Financing Development: South Africa! 9

10. * Tax to GDP ratio is now 26.1% from 22.9% in 1995!
!
* Registered taxpayers have increased from 6 million in 2010 to 17 million
in 2014 thereby increasing the assessable tax base (South African
Revenue Service - SARS)!
!
* Tax revenues have increased 9.6% to $US 73 billion in 2013!
* Personal income tax rates were increased in the 2015 budget adding
further tax revenues for 2015 of $US 1.1 billion (South African Budget
Speech)!
!
* Cost of collecting tax has decreased from 1.11% of revenues in 2012 to
1.07% in 2013 hence improving also tax revenue margin!
Increasing the tax base!
Financing Development: South Africa! 10

11. * Increases in revenue streams from levies on fuel and increases
in duties on alcohol and tobacco!
!
* Measures to combat BEPS (Base Erosion and Profit Shifting)!
!
* Introduction of carbon taxes in 2016 equal to ZAR 120/CO2/
tonne ($US 8)!
!
* Increase in VAT to finance the NDP!
!
* Possible introduction of wealth taxes given the current poor gini
coefficient!
Introducing new tax revenues!
Financing Developing: South Africa! 11

12. The principal DFI’s in South Africa are as follows:!
!
* Agriculture and Land Bank: provides development finance to
rural and agriculture projects!
* Industrial Development Corporation (IDC): provides
development finance to industrial and manufacturing projects!
* Development Bank of South Africa (DBSA): provides financial,
technical and other assistance with a focus on investing in
infrastructure and with the objective of acting as a catalyst to
maximise private sector access to opportunities in the provision
of public funding!
* Khula Enterprise Finance: provides finance and mentorship
services for the sustainable development of small businesses!
Principal DFI’s in South Africa!
Financing Development: South Africa! 12

13. * An excellent example of leveraging DFI’s and multi lateral
development banks (MDB) to attract private finance is that
of the Kaxu Solar One CSP (Concentrated Solar Power)
project that was awarded preferred bidder status under the
renewable energy independent power producer procurement
program (REIPPP)!
!
* In accordance with SDG 7,13,15 and 17 the Department of
Energy of South Africa launched a procurement program to
procure 17.8 GWp of electricity generated from renewable
energy sources (Solar, Wind, Biomass, Small Hydro) by 2030!
Case Study : Kaxu Solar One CSP project!
Financing Development: South Africa! 13

14. * The project involves the construction and operations of a
solar thermal tower power plant converting solar irradiation
into electricity which is introduced to the national grid network
and located in the Northern Cape Province!
!
* The 100 MWp project will provide clean energy to 95,000
households and will reduce CO2 emissions by 348,000
tonnes/pa (SDG 7,9,13 and 15)!
!
* The project provide 50 full time permanent jobs and 1,300
during construction (SDG 8)!
The Kaxu Solar One CSP Project!
Financing Development: South Africa! 14

15. The shareholders of Kaxu Solar One are:!
!
* Abengoa 40% - a privately owned Spanish company!
* IDC 20% - South African DFI!
* PIC 20% - South African state pension fund!
* Kaxu Community Trust 20% - local community!
!
Hence the above is an example of the leveraging of DFI
finance with private finance, pension fund and local community
publicly financed producing an infrastructure asset!
Shareholders of Kaxu Solar One!
Financing Development: South Africa! 15

16. The total project cost of $US 908 million is funded by shareholders for $US 248 million and senior
debt for $US 660 million which is provided by:!
!
* African Development Bank $US 142 million – MDB!
* DBSA $US 130 million – South African DFI!
* IFC $US 48 million – MDB!
* Commercial Banks $US 340 million!
It should be noted that both AfDB for $US 42 million and IFC for $US 48 million have utilized
concessional funding from the Clean Technology Fund (CTF) administered by the World bank
and have blended this to their portion of senior debt thereby lowering the overall cost of finance!
!
Hence $US 90 million of concessional loans from the CTF has resulted in a project of $US 908
million (1:10) which has pooled together $US 340 million commercial bank finance, $US 149
million private finance, $US 279 million from DFI’s, $US 49 million from pension funds and $US
100 million from MDB !
Blended financing of project!
Financing Development: South Africa! 16

17. The Kaxu Solar One consortium were awarded preferred bidder status on an evaluation criteria scorecard which was
based:!
* 70% on price!
* 30% on social development!
!
The social development scorecard of 30% was weighted as follows:!
* 25% for job creation (SDG 8)!
* 25% for local content (SDG 8)!
* 15% for ownership (SDG 8)!
* 15% for socio-economic development (SDG 8)!
* 10% for preferential procurement (SDG 8)!
* 5% for enterprise development (SDG 8)!
* 5% for management control including gender equality (SDG 5, 8)!
* Preferential procurement was weighted as follows:!
* 135% if purchased from local community!
* 100% if purchased from regional community!
* 85% if purchased from the rest of South Africa!
Kaxu Solar One social development!
Financing Development: South Africa! 17

18. Through the creative tailoring of the REIPPP program what were the development
results obtained from the award of preferred bidder status to Kaxu Solar One:!
!
1. Reduction in CO2 emissions of 348,000 tonnes per annum (SDG 3, 7,13,15)!
2. Clean and sustainable energy to 95,000 households (SDG 7,11)!
3. 50 full time direct jobs (SDG 8)!
4. 20% of net profits going back to the local community through the Kaxu
Community Trust thereby funding health and education programs (SDG
1,2,3,4,5,10)!
5. 20% of net profits going back to the IDC thereby generating further development
funds for future projects (SDG 7,8,9,13,15)!
6. $US 0.5 billion in taxes to the Government over the 20 year life of the project
(SDG 8,16)!
7. Employee training programs (SDG 8)!
8. Increase in revenue for local service providers thereby creating further job
opportunities and more tax revenue for the Government (SDG 8)!
Kaxu
Solar
One
:
Development
Results
Financing Development: South Africa! 18

19. 1. eeas.europa.eu/south_africa!
2. The New Framework for Financing Development – Video Presentation
– Bertrand Badre!
3. National Development Plan Vision for 2030 – National Planning
Commission – 11 November 2011!
4. Synthesis Report of the Secretary-General on the post-2015
Sustainable Development Agenda – page 6!
5. What is Development? – Video Presentation – Jan Eliason!
6. See note 2!
7. Taxing Multinational Enterprises – Base Erosion and Profit Shifting
(BEPS) II – OECD – Policy Brief September 2014!
8. From Billions to Trillions: MDB Contributions to Financing for
Development – World Bank – July 2015!
Financing for Development: South Africa! 19
Notes!