PARTICK DLAMINI

Making an impact on development

DBSA CE, Patrick Dlamini
ATNS - Mr. Patrick Dlamini.jpg

The new-look Development Bank of Southern Africa (DBSA) is well positioned to have a strong and meaningful impact on the development of South Africa and the continent at large.

The organisational restructuring that was started in 2012 has paid rich dividends, with the DBSA now boasting improved operational efficiencies and streamlined activities aligned with its role as a development finance institution (DFI). “We are now able to maximise our development reach and are financially sustainable,” says CE Patrick Dlamini.

Affirmation of the success of the organisational review came earlier this year when the state-owned entity announced an increase in disbursements over the last financial year of 39.1%. “We have repositioned ourselves as both a funding institution and an implementing agent, and are pleased that we are meaningfully assisting government with its infrastructure delivery initiatives,” says Dlamini.

As a DFI, the DBSA’s purpose is to accelerate sustainable socio-economic development by driving financial and non-financial investments in the social and economic infrastructure sectors.

However, when Dlamini was appointed in September 2012, the institution was in a very precarious position with regard to sustainability. It was this uncertainty that prompted the review and now, just over two years later, Dlamini says the DBSA is able to play its “rightful role” in South Africa and across the continent. In 2013, the DBSA’s geographical mandate was increased to cover the entire African continent, and not just SADC countries.

A period of change

Its organisational review resulted in the DBSA shedding almost 49% of its staff complement because, says Dlamini, they were over capacitated on the support side. It also entailed an examination of the sectors being funded by the DBSA. “We were funding in all sectors, from mining and agriculture to hotels; our focus was too widespread and our skill set was not geared for such wide coverage. Our focus areas are now more aligned with our developmental mandate and include energy generation, transmission and distribution, especially at local government level; transport – road, rail, sea, airport, pipelines; bulk water infrastructure; and ICT – specifically broadband, which is seen as vital to the progress of society in general.”

The DBSA also funds education and health initiatives within the borders of South Africa only.

“We were cognisant of how scarce our capital is and of the fact that revenue generation and profitability were key to our survival. This meant neatly picking the right sectors to fund – those areas that would have the biggest developmental impact. We were also cross-impacting with other DFIs, such as the Land Bank, and needed instead to create our own focus areas.”

Aims of the restructuring included doubling the DBSA’s loan book to expand its developmental reach; maintaining its presence in the metropolitan market whilst seeking to significantly increase its activities in medium and low-capacity municipalities, state-owned enterprises and private public partnerships; and expanding the DBSA’s role in infrastructure delivery.

“The belt tightening and restructuring of the past two years has seen the DBSA breaking records in terms of its disbursements. A total of R9.6 billion was disbursed in 2009, last year we achieved R12.7 billion and this year R13 billion was disbursed. We have also cut our costs-to-income ratio down to 30%, from a previous average of between 50% and 60%, which also provides positive affirmation of the effectiveness of our efficiency drive. The outlook is very positive!”

Going forward

Under-resourced municipalities remain a priority and are funded at concessional rates. “Private sector initiatives, like renewable energy projects, are funded at commercial rates but there are around 180 rural municipalities that are not in a position to bear financial burden, and these enjoy subsidised funding.”

Total disbursements to municipalities in 2014 amounted to R1.7 billion, of which R815 million was allocated to secondary and under-resourced municipalities.

Dlamini admits that as in any organisation, the restructuring brought with it considerable anxiety and uncertainty for the DBSA team. “Post the organisational review, however, we are seeing positive attitudes, increased levels of energy, and a greater understanding of what we are trying to achieve. Our value system has been refined and a new organisational culture is emerging.

“It is a journey though, not something that happens overnight. We are working very hard to ensure that at some point in the near future we will be able to say that we are happy with what we see, that we are operating at our peak and using our resources wisely. This involves a host of internal initiatives, including retraining people, exposing them to global best practice, and aligning our staff and organisational culture with what is happening out there in the world.

“I am very encouraged by what I see in terms of the state of the DBSA right now. On behalf of the Board, I can confidently say that the organisation is in a much stronger position financially and organisationally than ever. I am proud that we are stepping up to the plate and helping government with its infrastructure delivery imperatives, and that through our assistance to municipalities, more people have access to water, sanitation and electricity.

The road to dignity

Dlamini refers to UN Secretary-General Ban Ki-moon’s Synthesis Report on the Post-2015 Agenda entitled The Road to Dignity by 2030: Ending Poverty, Transforming All Lives and Protecting the Planet. Released in December, this report outlines six essential elements for delivering on the UN’s Sustainable Development Goals.

“Post-2015 talks about challenges faced by the continent now in terms of social exclusion, management of scarce resources and driving low carbon investments. DFIs like the DBSA have huge roles to play in helping Africa capitalise on new markets and fill the gap between emerging economies and the developed world. ICT and renewable energy have the power to create even more jobs than they already have, while also promoting sustainability. While focusing on maintaining and developing existing infrastructure, we need to embrace innovative new markets and find creative solutions to the challenges faced by the continent.”

The environment in which the DBSA operates and its engagement with stakeholders play a critical role in identifying risks and opportunities. The organisation’s strategy strives to maximise these opportunities and mitigate the risks effectively. The DBSA’s business model is based on the requirements that the organisation should remain financially sustainable whilst delivering its development mandate.

Its business model is premised on the following four main components:

  • Secure funding from reserves, capital markets, and other DFIs and government.
  • Prepare, fund and deliver infrastructure, whilst supporting the transfer of skills and knowledge.
  • Enhance development impact in defined areas, whilst earning interest and non-interest income.
  • Plough back profits into reserves and learn from experiences.

“As an innovative lending institution, the DBSA needs to leverage its knowledge in different markets,” says Dlamini, adding that ideally, the organisation needs to be able to participate to a greater extent in early stage project development as a way of building a pipeline for the years ahead.

Of critical importance is to find projects that are developmental and sustainable, and that offer acceptable financial returns.

Whilst, like South Africa itself, the DBSA faces a number of challenges, Dlamini believes that life is always full of challenges that that it is these that make us innovative. “One of the biggest challenges is the strength of the dollar against emerging market currencies, which has seen increased currency risks in the infrastructure financing space. “I hope that as a continent we will rise to the challenge, innovate and equip ourselves to find sustainable solutions.

“Economic prosperity and social inclusion are still problems common to most African countries. This calls for strong leadership across the board; governments, the private sector and NGOs need to work together to find a way forward. Collectively, great things can be achieved, as was demonstrated by the cancellation of the debt of African countries in 2005. That money was ploughed into development. A similar call to action is needed now to combat unemployment and poverty, especially among the youth. What kind of a future will our continent have if our leaders of the future are not being prepared to take up their responsibilities?”

Making its mark on society

In the 2013/14 financial year, the DBSA facilitated the implementation of the Accelerated School Infrastructure Development Programme to eradicate unhealthy and unsafe school structures in the Eastern Cape. The DBSA completed the construction of the final 32 of 49 schools as part of phase I of the programme. Almost 9 000 learners enrolled in these schools during 2014. An estimated 3 453 job opportunities and 57 SMMEs benefited during the construction of these new schools. The bank will assist the Department of Basic Education in the construction of a further 71 new schools in the next two years.

“We are determined to do away with mud schools,” states Dlamini. “The work was done on budget at the right quality and on time or even earlier,” he says, adding that they were also successful in paying the SMMEs involved within 30 days. “This is important not only to their cash flow, but to ensure they feel part of the development of their community.”

With few large construction companies working in rural Eastern Cape, the DBSA has worked with SMMEs and managed to not only deliver quality schools but decent housing too. “Our housing sector efforts are centred on a pilot project in Elliotdale, also in the Eastern Cape, where 4 800 houses have been built.

“As a result of these successes, we are seeing more requests for funding and will be working more in Limpopo and KwaZulu-Natal in the near future; talks are also taking place with the Mpumalanga government.”

Apart from funding other sectors, in the 2013/2014 financial year, the DBSA aided in the construction of 41 doctors’ consulting rooms across the country in areas identified as National Health Insurance (NHI) pilot districts and supported the national Department of Health to carry out refurbishment and maintenance of facilities at 68 clinics in the NHI districts.

“We will continue to get better and as our efficiency and developmental impact increase, so too will public appreciation grow. We are committed to trying to access cheaper funding across the world and are making good strides in working with international DFIs.”

Dlamini is hopeful that the DBSA will maintain its recent improved financial performance in the current challenging economy. “The picture we see in terms of the financial performance of the organisation, our disbursements and the kinds of deals we are funding in South Africa and across the continent show we are on a good footing. I am positive that we will show improved resilience and better financial sustainability.”

The DBSA is the co-ordinator of a number of government’s Strategic Integrated Projects, which have five core functions: to unlock opportunity, transform the economic landscape, create new jobs, strengthen the delivery of basic services and support the integration of African economies.

Energy

There is a chronic shortage of energy on the continent. To put it in perspective, South Africa's nominal installed electricity capacity is currently about 46 000 MW whilst Nigeria’s is less that 5 000 MW. South Africa, with a third of Nigeria’s population, has eight times more installed capacity and around one million Nigerians do not have access to electricity. In fact, the continent has approximately 620 million people without electricity.

“Energy is the biggest catalyst of economic growth and energy generation is a priority focus area across Africa. Power is especially important if we are to begin beneficiating more of our natural resources, as beneficiation is energy intensive.

“I feel positive when travelling across the continent, though, when I see how much progress has been made in towns across Africa. Africa’s collective GDP was US$500 billion in 1990s but now stands at US$2.7 trillion. “However, we need energy to sustain and increase our GDP and this will need massive infrastructure development.”

Despite this, Dlamini is excited by the future prospects of both South Africa and the continent, and cites the recent announcement by the South African government that it will build an additional 6 300 MW of renewable energy as a case in point. “The DBSA continues to play a big role in a number of renewable energy projects,” he says. “There have been massive investments made in this sector which have created many jobs and are contributing towards our ideal of a low-carbon economy.”

More than a financial institution

Dlamini says that an important component of the DBSA’s service offering is project preparation. “It is vital that projects are properly structured if they are to be seen as attractive to investors.” If a project looks promising but is not yet ready for financing, the DBSA does project preparation work to drive the project to bankability.

With regard to the recent Moody’s downgrading of the DBSA to Baa2, Dlamini says this was merely to reflect an alignment with government, as the DBSA’s sovereign. “As a sub-sovereign, our rating is influenced by the rating of the sovereign; you cannot have a sub-sovereign rated higher than a sovereign. However, the rating agencies have affirmed that they are happy with what we have achieved as an organisation and they are satisfied with how we are supporting government.

“Whilst the downgrade was expected, it does not mean that there are no implications,” says Dlamini. “Access to cheaper funding becomes more difficult and we will have to be increasingly innovative in how we raise funds to minimise the impact.”

In December last year, Dlamini was appointed as the new SADC DFI Network Chair. The appointment is for a period of two years from December 2014 to December 2016. As Chair, he will lead the DFI Network on the issues of capacity building and training as well as encouraging member institutions to work strategically together to deliver innovative financing structures toward project development in the region.

“To me, the appointment gives recognition to the value I can add to the network. I will focus on forging stronger ties with DFIs in SADC to increase co-operation and create a greater developmental impact. We must cross-pollinate each other in areas of development; something I would love to share with our sister DFIs is what the DBSA has achieved with regard to strengthening our international networks.”

Commenting on the New Development Bank being set up by the group of emerging economies formed by Brazil, Russia, India, China and South Africa (BRICS), Dlamini says this multilateral development bank will help fund unmet infrastructure investment needs. It should start lending as early as next year. “As a pan-African DFI and given our geographic mandate, the BRICS bank is a welcome initiative, especially in view of the reality that Africa’s infrastructure deficit exceeds US$90 billion per year over the coming decade. Any complementary infrastructure funding mechanisms are welcome, especially if they augment what we are doing in terms of project preparation to drive bankability.

“The infrastructure shortfall is huge and it is important to partner with other DFIs to address this and also to facilitate inter-regional trade,” he says.

In September, Dlamini will have been in office for three years. This period has been dominated by the DBSA’s organisational review. “We are now able to say that we are better positioned to bring positive changes to the people of South Africa and the continent. Being in this position has informed and enriched my life and I will look back and say that I am a better person for the experience,” he says.

Prior to joining the DBSA, Dlamini, who holds a Bachelor of Commerce degree from the University of Durban Westville (now merged with the University of KwaZulu-Natal), was CEO at the Air Traffic and Navigation Service. He also held executive positions at SAA Cargo and Transnet. Life is all about learning, he believes, saying, “Everyday is a school day – you must learn to question, to listen and benefit from life’s daily lessons.

“Through the provision of financing, project preparation and implementation support, we will power ahead with infrastructure development and in so doing, help address the challenges of high unemployment, poverty and inequality.

“The DBSA intends to deepen its impact on the lives of people across South Africa and indeed the continent. We see great potential to drive important infrastructure projects in South Africa and the rest of Africa by leverage our skills and encouraging economic integration,” says Dlamini. 

 

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