ANC boss Gwede Mantashe is either lying or doesn't know what he is talking about when he accuses the private sector of being unpatriotic for refusing to invest in South Africa's infrastructure. So says Adre Smit, who leads an infrastructure investment work group for the Association for Savings and Investment South Africa, which represents the private sector investment community.story_article_left1Smit says R1.2-trillion of private sector money is invested in government infrastructure projects, and this figure would be a lot higher if there were more projects ready to be invested in and fewer impediments to investing."Show us the bankable projects," says Smit, who is part of a joint government and private sector task team chaired by the National Treasury that was set up in 2013 to help create an enabling environment for the private sector to invest in infrastructure."The private sector is not scared of investing; they're looking for the opportunities to get involved," Smit said after attending a conference on urban investment last week."Right now, there's a shortage of bankable projects. There is more money chasing projects than there are projects."In 2013, government announced 18 strategically integrated infrastructure projects worth around R3.4-trillion over the next 20 years. Without private sector involvement, this means nothing."And if you want the private sector to get involved, you need to have a project that is bankable," says Smit, 66, a veteran fund manager from Old Mutual and Coronation.The only bankable projects that have come to market from the government since then have been in renewable energy - solar and wind. And private sector investors have piled in.block_quotes_start The lead must come from the political hierarchy, who must say: 'We want the private sector to do X, Y, Z block_quotes_endSmit points out that Johannesburg and Cape Town are the only two local authorities that have brought bankable projects to the market to raise funds - and the market has supported them."You need the political conviction from government that they want the private sector involved - and then you need a project put on the table for the private sector to get involved with."There is no reason the private sector would not want to invest in infrastructure - other than government obfuscation and distrust of the private sector, Smit says."Infrastructure assets meet the liability profile of life offices and pension funds very well. They're long term in nature, and their returns are linked to inflation or GDP growth, which is exactly the kind of return you're looking for when you make an investment into an insurance policy or pension fund."story_article_right2Most of the big infrastructure projects are monopolies, and they're supported by the government."There is every reason why the private sector would want to get involved."But they want to get involved at a much earlier stage, says Smit."They don't want to be handed a fait accompli. They want to be able to contribute to the structuring of the transaction so they can be comfortable the risks are being well analysed and well managed."The trick is to bring projects to a bankable state, he says. This is why project preparation is so important, and why private sector involvement at this level is essential."You need people with the skills to analyse a project and put it together and bring it to market. So funds can be happy that the cash flow that is going to be generated from the project will give them the returns they are looking for."These are the last people that local government officials involved in corruption want nosing around, of course - and so all too often the private sector has been excluded from this critical early phase, says Smit."You want maximum transparency because the more people you can have bidding for the projects, the more competitive it will be - and in that way you can bring down the price of the transaction."With the government running out of money and banks no longer able to play the funding role they used to because of Basel 3 restrictions, it has become "critically important" for the private sector to increase its involvement in infrastructure projects, says Smit.Unless the government facilitates this, the National Development Plan - about which "there has been a lot of talk and very little action" - doesn't have a hope of succeeding.story_article_left3"The lead must come from the political hierarchy, who must say: 'We want the private sector to do X, Y, Z.' Point them in a direction and the private sector is more than willing to engage," says Smit."Look at how quickly and how massively the private sector responded to the independent power producers programme."Mantashe's constant refrain that the private sector is sabotaging South Africa by not investing in infrastructure is "simply not true", says Smit."All the government bonds that are issued, all the municipal bonds, all the state-owned enterprise bonds, all those bonds that are issued are investments in infrastructure."As at the end of June this year, the total investment into the public sector in the form of these bonds by pension funds, life offices and unit trusts, excluding the Public Investment Corporation, was R1.2-trillion, says Smit.This is a pittance compared with the level of private sector investment in infrastructure in Canada and Australia, the most advanced countries in terms of getting their private sector involved in infrastructure funding, he says.In South Africa, pension funds and life offices contribute about 1% of the assets invested in direct infrastructure.In Canada it is around 15% and in Australia 10%."So potentially there's a lot of headroom," says Smit.What is also of serious concern apart from the lack of bankable projects for the local investment community to invest in, says Smit, is that more and more private sector investments into state-owned enterprises are requiring a government guarantee. This is because the state-owned enterprises- Eskom being the prime example - are so chaotically managed that their ability to repay the capital and interest on the investments is regarded as questionable, to say the least."This makes it very tough for government to borrow any more because these guarantees become part of their contingent liabilities which are taken into account when you calculate the budget deficit," says Smit.story_article_right4"So the government cannot continue issuing guarantees for much longer, which is why they need to engage with the private sector more meaningfully."Nobody is going to buy bonds in Eskom without a government guarantee, unless they are confident that Eskom is being led in the right direction by the right people. Ditto the other state-owned enterprises."The market is not comfortable with what is happening in Eskom or most of the other SOEs. There is a lot of concern about the ability of government to get its house in order in those institutions to ensure that the economy can continue growing."The scenario of more money than projects to invest it in will change when the blockages to investment - regulatory uncertainty, red tape, corruption, distrust between government and private sector - are removed."Once we unblock the market, South Africa isn't going to have enough money. And then we'll need to be able to structure these transactions in such a way we can attract funds from offshore."Being a developing country, the savings of South Africans are not nearly sufficient to grow the economy at the required pace, and the country will need foreign investment in these infrastructure projects. "So we need to make sure we get our house ... to make South Africa an attractive investment."If the government does not create an environment that attracts foreign investors, Smit says, the R4.3-trillion investment target that it talks about over the next 20 years will remain a pipe dream. The consequences for economic growth will be devastating, he says...