• Mechanism aims to attract private capital and reduce reliance on state guarantees

• Power transmission projects prioritized to boost energy security and renewables

The World Bank said on March 5 its board had approved a new Credit Guarantee Vehicle (CGV) aimed at helping South Africa raise $10 billion in private capital over the next decade to boost infrastructure investment.

The CGV forms part of the South Africa Blended Finance Platform for Resilient Infrastructure Program and includes an initial $350 million commitment from the International Bank for Reconstruction and Development (IBRD), a World Bank Group institution.

The vehicle will be hosted by the Development Bank of Southern Africa (DBSA). It will issue market-based credit guarantees to reduce infrastructure investment risk, attract private capital and lower reliance on sovereign guarantees.

"Over a ten-year period the program is expected to mobilize about $10 billion of capital (approximately R160 billion ZAR), including capital from private investors, commercial lenders and institutional investors, generate about 997,000 direct and indirect jobs, and contribute to the reduction of greenhouse gas emissions," the World Bank said in a release.

South Africa has recorded economic growth of less than 1% for roughly a decade, while unemployment remains above 30%. Persistent bottlenecks in electricity, freight logistics and water supply continue to raise costs, weaken productivity and limit opportunities for businesses and households.

Power transmission a priority

Africa's most industrialized economy has a deep and sophisticated financial market, but long-term institutional capital remains limited in infrastructure investment. At the same time, infrastructure needs are substantial and cannot be financed by the public sector alone.

The new guarantee mechanism is expected to prioritize capital for electricity transmission infrastructure to strengthen energy security and accelerate the construction of renewable power plants in the country's solar- and wind-rich regions.

"The CGV, which will support massive investments in transmission infrastructure, will be incorporated as a company in the coming months.Next, we expect development partners to confirm their capital participation. We are targeting the CGV to be operational later this year," South African Finance Minister Enoch Godongwana said, adding that the mechanism should be operational before the end of the year.

President Cyril Ramaphosa announced in February the creation of an electricity transmission company independent of state utility Eskom Holdings. Global energy companies including France's Engie, India's Adani Power and China's State Grid International Development have already expressed interest in the project, which involves building 14,000 kilometers of new transmission lines at an estimated cost of around 440 billion rand ($26.3 billion).

The DBSA said separately that the guarantee mechanism, targeting initial capitalization of $500 million, is also expected to support projects in transport, water and social infrastructure.

"The mechanism is designed to be sustainable and scalable, starting with electricity transmission infrastructure and expanding to other sectors as the model proves itself," the regional development lender said.

Walid Kéfi