REGIONAL INTEGRATION OF INFRASTRUCTURE: BRINGING EFFICIENCIES TO SERVICE DELIVERY IN THE REGION

2. REGIONAL INTEGRATION OF INFRASTRUCTURE: BRINGING EFFICIENCIES TO SERVICE DELIVERY IN THE REGION Presentation to the Zimbabwe Mining Indaba 2013, 25 – 27 September 2013 N. Nyamambi

3. CONTENTS • ROLE AND IMPORTANCE OF INFRASTRUCTURE • STATUS OF THE INFRASTRUCTURE • THE REGIONAL INITIATIVES • THE PROJECTS • FUNDING CHALLENGES • POSSIBLE SOLUTIONS • CONCLUSION

4. ROLE AND IMPORTANCE OF INFRASTRUCTURE • Infrastructure is a catch-all term used to describe everything that surrounds or supports the basic operations – roads, power, water, communications, housing and others • Studies have shown that inadequate infrastructure leads to production inefficiencies and high costs of doing business. This varies from operation to operation & is largely dependent on location • Development of reliable, affordable & adequate infrastructure contributes significantly to the efficient and effective functioning of the economy. • The region in general has been characterised by lack of investment in new capacity and inadequate maintenance of the existing infrastructure

5. STATUS OF REGIONAL INFRASTRUCTURE DEVELOPMENT Economic growth & productivity in the region is hampered by infrastructure related problems, the main ones being: • Insufficient energy supply – region characterised by inadequate generation capacity to meet current demand • High transport (rail & roads) costs – poor & unreliability state of transport network • Lack of low cost access to information and communications technologies

6. THE SADC REGIONAL INFRASTRUCTURE DEVELOPMENT MASTER PLAN • In response to these challenges, SADC crafted the RIDMP, aimed at constituting the Infrastructure Development Blueprint to year 2027. • RIDMP is divided into three phases, with Phase 1 (2013-2017) as the Short Term Action Plan (STAP). Priority is to consider projects in five key sectors – transport, energy, ICT, tourism and water. • STAP is meant to cater for those projects ready for implementation whilst starting preparation for projects to be implemented in phases 2 and 3 • Financial requirements of STAP projects is estimated at US$64 billion

7. STAP PROJECT BRIEFS • Because of its strategic geographical location, Zimbabwe is the natural home for most projects envisaged in the Master Plan and these include: • Hwange Power Station 7 & 8 Expansion Project – estimated to cost US$1.1bn. Project development is scheduled for completion in 2017. • Gokwe North Power Station – a greenfield project estimated to cost US$2.2bn. The feasibility studies currently being updated. • ZIZABONA Transmission – investors’ round table was held and MoU signed. Estimated cost is US$223m.

8. PROJECT BRIEFS cont: • Beitbridge – Chirundu Road – estimated to cost at least US$1bn., depending on option adopted. Feasibility studies completed and project ready for implementation once funding is raised. • Beitbridge Border OSBP – the upgrade and expansion of infrastructure at the border post at an estimated cost of US$6 million. • Plumtree – Bulawayo – Gweru – Harare – Mutare Road – rehabilitationof the Highway at a cost of US$206 million. This is work in progress. • National Railways of Zimbabwe - revival of the national rail utility at a cost of US$200 million. Feasibility studies undertaken. • Projects outside Zimbabwe include Inga III Hydro Power Project in DRC (US$1.7 bn), CahoraBasa North Bank Power Station in Mozambique (US$800m)

9. FUNDING CHALLENGES Against these huge financing requirements for identified regional projects, the major hurdle to move forward becomes the financial constraints. The region is characterised by: • Shortages of long term funding due to limited domestic capital markets • Institutional capacity constraints – e.g. weak balance sheets of most would be lenders • Lack of funding fro project preparation and packaging and therefore inability to fund feasibility studies and other work necessary to develop projects to bankability stage • Regulatory environment in some member states not conducive to encouraging new private sector players to participate in infrastructure investment

10. POSSIBLE SOLUTIONS • Against the challenges highlighted above there is need for a move towards a more regional capital market for the benefit of governments & private sector borrowers seeking to raise capital • Since the formulation of the Master Plan efforts are already underway to accelerate investment in infrastructure in SADC through sustainable funding . • Discussions are going on around the formation of a SADC Development Fund. This will later be turned into a regional development bank. • The Fund will have an infrastructure window to provide financial support for the implementation of regional infrastructure projects. • It is envisaged that the Fund will start with seed capital of US$1.2bn, with the shareholding comprising member states (51%), private sector (32%) and cooperating partners (12%). • Also on the cards is the establishment of a regional Development Bank supported by BRICS.

11. THE CAPITAL MARKETS • Efficient capital markets are as an important integral part of infrastructure development, especially with regard the raising of long term funding. • Benefits of well developed capital markets include higher levels of capital growth, direct access by borrowers of funds from multiple investors, effective and efficient allocation of funds and attraction of long term financing ideal for infrastructure • It is necessary therefore for regional players to promote the development of an effective bond market, with highly liquid government bonds as precursor for other private sector bonds • The fundamentals for accelerated development of bonds markets include a sufficiently wide market with a variety of instruments available, there must be depth in the market and well developed market infrastructure • On the local scene, IDBZ has taken the initiative to revive the domestic bonds market by successfully issuing the maiden Infrastructure Development Bond proceeds of which were advanced to ZETDC to finance a Prepaid Meter Project. • The Bank will continue to engage all stakeholders in working towards the reviving the once vibrant capital market • In addition, the Bank will engage its strategic regional partners - the DBSA, AfDB and others to cooperate towards achieving this goal of a vibrant regional financial sector.

12. CONCLUSION • Considerable ground has been covered, but there is scope for efficiency improvement • The sizes of individual economies tend to limit the extent of capital markets development, and hence the need for an integrated regional capital market • It is imperative that financial sector regulators and market players work together towards the fulfillment of this noble objective.

13. THANK YOU