Positioning the Bank as a Centre of Excellence in Infrastructure Planning Investment -Presentation to the Partners Foru

6. Systematic dispossession and marginalisation of the majority from the formal economy under apartheid Marginalisation means subordinate and dependent, but not separate Effect is both deep poverty amongst jobless and very poor pay and conditions for private-sector elementary workers The production structure Mining provides over half of all exports, but does not create much employment Employment creation largely in tertiary activities and public services, and highly cyclical Coal-based, energy-intensive economy biases heavy industries and presents future risks Rural areas not integrated into national economic sustainability model and do not provide decent livelihoods for most residents

7. Until the crash, the commodity boom combined with global liquidity explosion to foster relatively rapid and employment-creating growth � but not sustainable Most job creation in construction, retail and public/private services Financing of investment dependent on short-run capital inflows to equity and bonds, while domestic private savings plummeted � associated with huge deficit on current account Policy response: Government policies impose costs on business mostly for BEE, exports, high-tech industries and beneficiation, rather than promoting employment creation Fragmentation of rural-development efforts, without a common long-term vision for former Bantustans or holistic support for new rural activities Post-1999 social compact based on Redistribution through the fiscus Moderate low-level employment growth Hence, even if global conditions permitted this path to continue, is it desirable?

8. The four core elements of an effective long-term, sustainable and increasingly equitable development strategy are: Government fulfils core state functions � fiscal and monetary strategies, ensures core economic infrastructure (electricity, logistics and water), education, health and security � that are required for sustained economic growth Increased and diversified production structure to maximize employment creation in the short and medium term while laying the basis for long-run, increasingly knowledge-based growth Increased equity and social mobility through more equitable education and ownership of assets Social protection linked to active labour market policies to protect the poor and permit greater economic responsiveness.

10. In the initial work on the growth path, the main areas where new jobs can be anticipated are in the following nine areas: �Infrastructure development Climate change and the green economy Industry: the traded-goods sector Knowledge economy activities Rural, agriculture and agro-processing sector Tourism and BPO Social economy development Public sector growth Regional economy

11. Industrial policy to emphasise rapid employment creation in the medium term, rather than high-tech manufacturing, which would require: Providing capacity and funding for the agricultural value chain, construction and public/private services Greater support for production for domestic and regional markets More consistent and explicit demands around economic needs for education and skills development, health and urban planning/transport New sustainable funding models for economic infrastructure More vigorous efforts to deal with the deficit on current account and to initiate systemic changes to mobilise domestic resources for investment Mining policies to focus on sustaining and where possible expanding export revenues rather than narrow BEE and beneficiation as an end in itself

12. Impact of the international crisis on demand and fiscus Departments protect current priorities at cost of new requirements (especially export drive in mining/agriculture/services and providing support for labour-absorbing sectors) Unable to build co-operation across SOEs, municipalities, health and education systems Inappropriate financing for new build programmes leads to either inefficient, unreliable services or excessive costs Rural development programmes fail because objectively impossible to do anything in poorest regions outside the Eastern Cape Failure to support growth in the rest of southern Africa constrains markets and fosters in-migration State capacity and governance insufficient to manage the necessary implementation and transition processes

14. DBSA must make �the structural transformation of the current growth path� the primary focus of its work Hence, the Bank must seek to originate or advance programmes that advance a transformatory growth path What has been the depth and scale of our impact? What priority investment programmes and projects should we invested in that are aligned to the identified priorities and with employment as the key motivator? How can we improve State performance in critical areas?

15. Support to labour-absorbing sectors Agriculture, agro-processing, mining, infrastructure inputs, labour-absorbing manufacturing, green economy, BPO and tourism. Improved employment opportunities and promotion of economic livelihoods in rural areas Formal jobs, household production and informal activities. Policy development (including engagement with key role players) with regard to: Strategies for faster growth and more labour-absorbing growth path; A clear, detailed, costed and multi-pronged youth employment strategy; Causes and solutions (including coordinated actions) to address high cost structure and lack of competitiveness in the economy; and Cost structures and regulatory constraints affecting cooperatives and SMEs.

16. Infrastructure that raises export competitiveness and SA�s trade share. Further expansion of the EPWP II, especially within local government and social sectors. Increased labour-intensity of infrastructure expenditure, particularly at provincial and municipal level. Maintenance and strategic expansion of the road network. Maintenance and supply availability of bulk water infrastructure (including funding model). Electricity generation, transmission and distribution (including funding models). Infrastructure planning How to improve regulations, efficiency and effectiveness.

17. Improved administrative and financial capability E.g. a reduction in unqualified audits, improve collection rates, reduce under-spending on capex, etc. A review of policies and legislation before 2011 LG elections. New legislation to improve spatial and land use planning. Integrated planning that incorporates environmental issues into land use planning. Enhancing quantity and quality of water resources (reduced water loss). Improved inter-governmental relations including a single national committee of Ministers (COGTA, finance, NPC, water, energy); Policy support to �single window of coordination�. Differentiated approach to municipal financing, planning and support. Improved access to basic services e.g. a SPV to mobilise private sector funding. Building rural local government, including ensuring qualified top four management (by 2011).

18. Improving budgeting and planning in the State Including sequencing of policies and setting of targets. Better business processes, systems, decision rights and accountability management in the public service. Increases in service delivery quality and access. Introduction of a system to improve procurement and Supply Chain Management. Systems to reduce corruption Key measure could be a corruption perception index. Performance development, performance agreements and assessments.

21. Bank being called upon to play an increasingly proactive role Traditional notions of additionality increasingly redundant New delivery model required

22. DBSA needs to play a critical enabling role in the planning and desing of programmes to boost structural economic changes Need to focus on a smaller set of high impact areas to balancing global competitiveness with social equity

23. Reducing market dependence through leveraging government pension funds for developmental purposes Gaining additional income through offering preferential shares Taking advantage of potential Reserve Bank guarantees In the long-term, looking at the possibility of becoming a deposit taking institution to boost reserves and thus reduce our cost of finance

24. Changes would require the Bank to align to additional regulatory requirements and processes pertaining to the Governance Framework governing banking institutions (e.g. Basil II/III), whilst at the same time engaging with the Minister of Finance regarding the most appropriate dispensation for the Bank (e.g. with regard to reporting requirements)

26. Building new planning capabilities Through policy development, mitigate the systemic risks facing the achievement of DBSA�s mandate and facilitate the development opportunities Understand economic and social basis for infrastructure (demand) Further embed a �space economy� approach: understand spatial dynamics, linkages and opportunities. Ensure best practice and thought leadership in integrated planning and systems thinking: sequencing, timing, resourcing, linkages, capacities, complexity, etc. Interrogate DBSA measurement of its development impact to include new focus on decent work and equitable access to infrastructure.

27. Improving prioritisation through greater scale, spend and expertise in core areas, e.g.: Energy, water, transport, health, education, human settlements, green industries, local government, rural development. Building an explicit DBSA value chain: Engaging in policy and planning support and development, linked to programme origination, finance and capacity building Taking a programmatic (sectoral or spatial) rather than project �based approach Improved focus on finance and support to low capacity municipalities: Creative finance and risk management related to perceived borrowing capacity (pledging, etc) of low capacity municipalities. Ensuring DBSA financial sustainability Portfolio mix. Diversified revenue sources.

28. The following objectives need to be embedded in all DBSA�s business activities: Creating decent work (which is longer-term, including direct and indirect job creation) Delivering enabling economic infrastructure to support the new growth path Supporting improvements to operations and maintenance Achieving Spatial spread, particularly rural development Enhancing low capacity municipalities� turnaround and finance Supporting broader public sector improvements Clearer links would need to be made and higher scores given to specific priority sectors, including weightings on planning, capacity building and finance