Another new state-owned company for South Africa

South Africa’s Public Works Minister Dean Macpherson says he plans to create a state-owned company that will manage the government’s real estate portfolio and entice private investment into infrastructure projects. 

The state is the country’s biggest real estate owner with about 88,000 buildings and 5 million hectares of land that together are estimated to be worth R155 billion. Macpherson’s department will also blacklist companies that don’t honor commitments. 

Years of neglect and graft have led to buildings — many in the center of major cities — being taken over by squatters who are extorted by armed gangs, or abandoned.

The minister’s long-term plan is to put the government’s holdings together in a vehicle that sets the foundation for the creation of a state-owned company.

“We really have to stop seeing public works as a department of bad buildings and we have to see ourselves as an economic delivery unit,” Macpherson said in an interview.

“We’re going to create an asset book that is worth hundreds of billions of rand that could possibly be traded, could possibly be sold for equity or can raise debt for social infrastructure.”

The department of public works and infrastructure is seeking advice from development finance institutions on how to set up an entity with strong governance structures and generate revenue and profit from the assets, he said.   

Still, the proposal will add to the list of more than 120 companies run by the government. Most of which are unprofitable. 

A government call in November for private companies to help it revive 16 dilapidated buildings in eThekwini — the municipality that includes the port city of Durban — has now been extended to include 31 sites nationwide.  

The plan is being seen as a trial run in turning around and generating an income from state assets, Macpherson said.

More than 650 companies have expressed interest in reviving the buildings, which together are estimated to be worth R1.4 billion, the minister said.

The department expects private firms to invest about R10 billion in the project and garner annual revenue – in the form of rent or a profit share – of at least R200 million, he said.    

Macpherson, who belongs to the Democratic Alliance — the nation’s second-largest party — was appointed to his post in June when a government of national unity took office after the May 29 elections failed to produce an outright winner.

The minister, if given a full five-year term in the position, expects the department to look “very different” by the next national election.   

While President Cyril Ramaphosa, a member of the African National Congress, has called for the country to be turned into a construction site to bolster an economy that’s expanded by an average of less than 1% a year for more than a decade, progress is being stymied, in part, by a lack of project development and execution expertise in municipalities. 

“The real crisis in infrastructure is in local government,” Macpherson said. He cited instances where municipalities return money earmarked for infrastructure to the government as they lack the ability to carry out the works.

Some local governments spent below 40% of their allocated infrastructure grants in the three months to December, according National Treasury data.   

To tackle these issues, the department is piloting an ‘adopt-a-municipality’ initiative with four local governments run by different political parties across the country.

Under the arrangement, public works officials will effectively take over running projects to ensure they’re delivered effectively and efficiently, he said. 

“I would like to see us transition so that there is a single point of entry and execution on infrastructure. So you don’t have these sort of mixed bag of results,” he said.