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The eight parties to the Multi-Party Charter invited a wide range of civil society organisations to get input as to what civil society expect from the Charter. This engagement was held on 28 November 2023 at the Birchwood Hotel in Boksburg. The Inclusive Society Institute (ISI) attended the meeting in order to gain a deeper understanding as to the objectives and policy approaches of the Charter. It was noted that the individual parties would continue to campaign independently, and that the Charter was in effect a pre-election coalition agreement. The Charter does not have its own set of policies, but have agreed a set of principles around which a government programme should be designed. The ISI will continue to monitor the developments within the Charter.

The Inclusive Society Institute (ISI) participated in the CiviNovis/School for Social Innovation/Konrad Adenauer Stiftung Masterclass on Coalition Governance, which was held at the Dutch Reformed Church Hall in Bellville Cape Town on 7 and 8 November 2023. The ISI was represented by its Chief Executive Officer, Daryl Swanepoel. The workshop entailed the garnering of a deeper understanding of the current state of affairs regarding coalitions in South Africa, case studies and group discussions. It also explored coalitions that count, that is a focus in ethical practices, and resilience through mindful compassion. It also considered future perspectives apropos coalitions in the country.

The National Planning Commission [NPC] held a Consultation Session on the Social Cohesion Framework on Thursday, 23 November 2023. The Inclusive Society Institute was represented by its Chief Executive Officer, Mr Daryl Swanepoel. A presentation was made by Commissioner Abba Omar with regard to the Social Cohesion Framework Document (click here for framework document / click here for presentation), and the Department of Sports, Arts and Culture presented their Revised National Strategy for Social Cohesion and the National Social Compact for Social Cohesion and Nation Building. Included in the NPC’s strategy is the establishment of a Social Cohesion & Reconciliation Committee, which will be multiparty in nature, and a Social Cohesion & Reconciliation Council which will be composed of NPOs, relevant research organisations, Labour, Business, the Office of the Deputy president, key departments and Chapter 9 Institutions.

The CEO of the Inclusive Society Institute (ISI) visited Constructor University in Bremen, Germany, on Monday, 20 November 2023, where he met with Professor Klaus Boehnke, an international expert on measuring social cohesion in countries. The ISI and Professor Boehnke intend to work together in the development of a Social Cohesion Radar for South Africa. The Isi is of the view that social cohesion in South Africa is slipping, and that raising awareness and programmes aimed at enhancing reconciliation and nation-building in the country needs more urgent focus and attention than the current experience. Social cohesion is by no means a nice to have. It is an economic imperative. Research indicates that countries with a high level of social cohesion tend to have a higher level of economic growth when compared with countries that experience low social cohesion. Similarly, social stability is promoted through high levels of social cohesion. The six-month project will be launched in January 2024.

The Inclusive Society Institute's study trip to Denmark, 14 - 17 November 2023, was a pivotal endeavour in understanding the Danish labour business compact, aimed at enriching inclusivity efforts in South Africa. The delegation, comprising Zingiswa Losi (COSATU President), Susan Khumalo (Deputy President, SACTWU), Matthew Parks (COSATU Parliamentary Coordinator), Khulekani Noel Mathe (Deputy CEO, BUSA), Jahni de Villiers (Vice Chairperson, Social Policy Dept., BUSA), Michael James Lawrence (Executive Director, NCRF), Daryl Swanepoel (CEO, Inclusive Society Institute) and Nicola Bruns (Coordinator and Researcher, Inclusive Society Institute) engaged in a series of enlightening meetings. Their interactions spanned from a meeting with Ms. Sofie Holme Andersen at Arbejdernes Landsbank to insights from former Finance Minister Mogens Lykketoft, enhancing their understanding of Denmark's social and economic frameworks. Highlights included a session at Danish Industry, organised by Clara Halvorsen, and a deep dive into labour relations with Jesper Nielsen, Head of Department at 3F United Federation of Danish Workers. The trip also featured a culturally enriching visit to the Workers' Museum, offering a glimpse into the history of Denmark's labour movement. These diverse experiences are set to significantly contribute to the Institute's mission of fostering a more inclusive society in South Africa.

Copyright © 2023 Inclusive Society Institute 50 Long Street Cape Town, 8001 South Africa Registration: 235-515 NPO All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means without permission in writing from the Inclusive Society Institute DISCLAIMER Views expressed in this report do not necessarily represent the views of the Inclusive Society Institute or those of their respective Board or Council members. All records and findings included in this report, originate from a panel discussion on developing a new economic blueprint for South Africa, which took place in August 2022 Author: Mariaan Webb, Creamer Media Writer Edited by: Daryl Swanepoel This report has been enabled through the generous support of ASLA Contents 1. Abbreviations & acronyms 2. Introduction 3. Market dynamics and trends 4. Mechanisms to support infrastructure investment 5. Challenges in infrastructure investment 5.1 Ineffective State institutions 5.2 Failure to implement programmes 5.3 SoE financial constraints 5.4 Budget underspending 5.5 Inappropriate SCM and procurement practices 5.6 Tardy tender processes 5.7 Delivery performance deficiencies 5.8 Construction mafia 6. Recommendations 6.1 Support rebuilding State capacity 6.2 Professionalise the public service 6.3 Elevate project leadership 6.4 Transform supply chain management 6.5 Reimagine procurement 6.6 Establish effective delivery management systems 6.7 Prioritise value for money 6.8 Delegate essential functions 6.9 Leverage the private sector 6.10 Boost construction confidence 6.11 Tackle the construction mafia 7. Conclusion 8. References 1. Abbreviations & acronyms GDP gross domestic product GFCF gross-fixed capital formation IRC Infrastructure Report Card ISI Inclusive Society Institute JSE Johannesburg Stock Exchange MFMA Municipal Finance Management Act MTEF medium-term expenditure framework NDP National Development Plan PFMA Public Finance Management Act PPP public-private partnership Sanral South African National Roads Agency Limited SCM supply chain management SoE State-owned enterprise 2. Introduction South African economic growth has languished in the aftermath of the 2008 global economic crisis, persisting in a state of fragility, owing to a combination of global and domestic factors. Globally, the past 15 years has seen long periods of low commodity prices and devastating shocks including the Covid pandemic and the war in Ukraine. Domestically, challenges such as chronic power shortages, a faltering transportation infrastructure, particularly within the freight logistics system, and alarmingly elevated crime rates, have collectively imposed substantial impediments to the investment necessary for sustainable economic growth. The construction industry ought to be a cornerstone upon which the foundation of the economy is laid. However, the current state of the sector in South Africa falls short of the vigour and vitality it has historically possessed. The contribution of industry – comprising mining, manufacturing and construction – to gross domestic product (GDP) has been declining steadily in the last three decades, from 31.2% in 1994 to 24.4% in 2022 (World Bank, 2023). The prolonged underperformance can be traced back to a range of factors, including subdued investment levels, diminished confidence, unsustainable undercutting on tender prices and a surge in organised crime activities (Treasury, 2023). As part of its economic research, the Inclusive Society Institute (ISI) has undertaken an extensive series of dialogues with various sectors of the economy, which reveal the need for attention to three areas to propel the nation towards economic prosperity. These areas are electricity; economic infrastructure; and the troubling issue of youth unemployment. Addressing these three components should act as a catalyst, setting in motion a chain reaction to rebuild the economy. Recognising the need for innovative solutions, the Institute is actively engaged in economic modelling to assess macroeconomic proposals for financing infrastructure development. South Africa’s current economic model falls short of delivering the quantum leap required to revitalise and upgrade infrastructure, especially in a country with a growing population, high unemployment and sluggish economic growth. The unemployment rate was recorded at 32.6% (narrow definition) in the second quarter of 2023, with 7.92-million people unemployed. According to an expanded definition of unemployment that includes those discouraged from seeking work, 42.1% of the labour force was jobless in April to June 2023. In a reflection of how the past decade’s anaemic growth has affected joblessness, nearly three-million more people have become unemployed since the second quarter of 2013 (Statistics South Africa, 2023a). Economic growth is hovering below 2%, a pace insufficient to make significant strides towards achieving economic objectives. Despite reaching a peak of R4.6-trillion in 2022, the economy has only managed 0.3% growth since the prepandemic figure of R4.58-trillion. This growth lags the 3.5% rise in the country’s population over the same period (Statistics South Africa, 2023b). According to Statistics South Africa, six industries are still struggling to regain their prepandemic production levels. Among them, the construction sector finds itself in the most dire situation, remaining 23.1% smaller than what it was before the pandemic. To compound its woes, the construction industry’s decline predates the onset of Covid-19. Indeed, 2022 marked the sixth consecutive year of economic contraction for the sector, rendering it a mere shadow of its former self (Statistics South Africa, 2023b). The persistent economic stagnation in South Africa is significantly exacerbated by infrastructural challenges, most notably within the beleaguered rail sector. Chronic underinvestment and mismanagement have contributed to a dramatic collapse in services. Statistics reveal the severity of the situation, with the volume of freight transported by rail plummeting by 31% since 2017. Inefficiencies stemming from these rail woes are estimated to have imposed a cost of R250-billion on the economy in 2022 alone. Passenger rail services have not been immune to the challenges plaguing the rail system. In 2015, there were about 500-million Metrorail passenger trips, a figure that had plummeted to a mere 8.56-million in 2021 (Swanepoel, 2023). The ISI’s research underscores a critical imperative: for South Africa’s economy to achieve meaningful progress, it must aspire to growth rates of at least 4% to 5%. The current status quo is untenable and simply relying solely on anti-corruption measures and basic reforms will not suffice to attain higher economic growth. The Institute is conducting dialogues with diverse sectors to glean insights and perspectives aimed at accelerating economic growth. During its recent summit with the construction industry, the ISI delved into the development requirements for both social and economic infrastructure, which are pivotal in reshaping the trajectory of the South African economy. Additionally, the summit explored strategies for positioning the construction industry optimally to meet the demands and deliver the urgency needed. 3. Market dynamics and trends The construction industry in South Africa has undergone a dramatic change in the past 15 years, transitioning from a powerhouse to a struggling industry. In the early 2000s, blue-chip construction companies were among the top performers on the Johannesburg Stock Exchange (JSE), raking in significant profits. However, the once-thriving sector has seen its fortunes decline sharply. Some companies have collapsed, while others exited the industry altogether. Basil Read and Group Five, once prominent names, have faced financial crises and eventually collapsed. Murray & Roberts shifted its focus away from construction and entered the oil and gas engineering services sector, while Aveng narrowly survived a financial crisis. Today, WBHO is the biggest construction company on the JSE. The sector’s downturn can be attributed in part to the government’s failure to deliver on promised infrastructure projects. WBHO says in its 2022 Annual Report that the rollout of the R800-billion infrastructure development plan announced in the 2021 Budget had gained little traction, particularly following the cancellation of major projects by the South African National Roads Agency Limited (Sanral) during that year. Sanral in May 2022 cancelled and ordered the retendering of construction projects worth R17.4-billion, owing to what it claimed was a material irregularity in the tender process. By November, four of the five tenders had been re-awarded, with tenders worth R6.65-billion going to joint ventures led by foreign contractors. Despite facing fiscal constraints, South Africa continues to increase the budget allocation for infrastructure every year in a bid to direct public spending towards productive capital investment. In the 2023 Budget, the Finance Minister detailed a R903-billion infrastructure plan for the medium term, of which R351-billion will be spent on transport and logistics infrastructure, including roads, and R133-billion on water infrastructure. High levels of capital investment, or gross fixed capital formation (GFCF), typically indicate a positive outlook for future economic growth, while low levels of investment can be seen as a sign of stagnation or declining confidence. Low levels of economic growth have dampened both public and private-sector fixed capital investment, including investments in the construction industry. Although GFCF recovered to 14% of GDP in 2022, from a low of 13% in 2021, investment remains well below the National Development Plan: Vision 2030 (NDP) target of 30% by 2030 (Masondo, 2023). Investment in infrastructure has a high output multiplier effect, or significant impact on the overall economy. The construction industry, in particular, has a strong ability to create additional economic output and jobs, especially for unskilled workers. Public and private sector capital investment as a share of GDP falls below NDP target Source: 2023 Budget Review Achieving the NDP objective hinges significantly on investments made by the public sector, including State-owned enterprises (SoEs). However, public sector spending has experienced a notable decline, plummeting from 7.3% of GDP in 2015, to a mere 5.4% of GDP in 2019 (Masondo, 2023). Beyond statistics, the gradual decline in GFCF, especially in public sector investments, has tangible repercussions. It is felt in a lack of investment in crucial areas, such as rail, ports, water infrastructure, sanitation, public transport, electricity and housing. This deficiency disrupts the synergy between public and private capital formation. An increase in public infrastructure raises the productivity of private capital, as public capital is a complement to private capital. Higher private capital increases the productivity of labour and leads to higher wages, which encourages more work and incentivise higher investment in private capital. Source: SAICE 2022 Infrastructure Report Card for South Africa The contraction in investment can be attributed to a range of factors, encompassing a general shortage of fiscal capacity within the government, underspending of allocated budgets for infrastructure projects, protracted delays in the awarding and completion of infrastructure contracts and the acute financial constraints confronting SoEs, such as power utility Eskom and freight logistics group Transnet. 4. Mechanisms to support infrastructure investment The statistics concerning gross-fixed capital formation (GCCF) present a sobering outlook for South Africa. Nevertheless, there are grounds for optimism regarding the potential resurgence of investment in the coming years. Deputy Finance Minister David Masondo has identified several mechanisms that could serve as catalysts for this revitalisation. Infrastructure Fund: With large-scale investment touted as the tried and tested way to boost economies in the short term, the Infrastructure Fund was created in 2019 to address the need for blended finance to enable the efficient execution of infrastructure programmes and projects in South Africa. Currently housed in the Development Bank of Southern Africa, the Infrastructure Fund’s aim is to transform public infrastructure through blended financing solutions by sourcing and blending capital from the private sector, institutional investors, development finance institutions and multilateral development banks. Pension investments: Regulation 28 of the Pension Fund Act has been amended to allow institutional fund managers to invest more in assets such as infrastructure. The aim of the amendment is to explicitly enable pension funds to invest in infrastructure such as roads, renewable energy and ports. To this extent, the amendments introduce a definition of infrastructure as an asset class and set a limit of 45% exposure in South African infrastructure investment. The setting of such a maximum limit was regarded as a more ‘market-friendly’ response to calls for the introduction of ‘prescribed asset requirements’, which would have set a minimum level for pension fund investment in infrastructure projects. Division of Revenue Amendments Act: Through the 2022 Division of Revenue Amendments Act, government has enabled provincial governments to pledge their infrastructure grants to leverage more financing to fast-track the rollout of infrastructure. Pledging effectively is a means by which a province secures a loan through borrowing with a view of using or issuing a guarantee, indemnity or security as the conditional grant for the repayment of that loan. The conditional grant or portion of the conditional grant for the current financial year’s allocation and future financial years’ indicative allocations for the province are committed towards the repayment of the loan taken. Public-private partnerships (PPPs): Following a slowdown of PPPs, government has initiated a review to consider lessons learned from the application of the current PPP framework over the past eight years. The review found that there are too many steps and multiple approval bottlenecks. A lack of capacity, especially at the municipal level, led to reduced uptake for PPP projects. PPP regulations also applied to all projects, regardless of size. At national level, an incongruency between budget cycle and the PPP planning time has been highlighted. Masondo has said that a uniform planning tool for all infrastructure will be implemented and that this will mainstream the PPP cycle to link up with the Budget process. Further, while the review found that there is no need for a complete overhaul of the PPP legal and regulatory framework, some lengthy approval processes will be changed to speed up project implementation. Budget allocation: Government uses Budget allocations to support fixed capital formation. Overall, R903-billion will be spent on infrastructure projects over the medium-term expenditure framework. 5. Challenges in infrastructure investment 5.1 Ineffective State institutions Despite substantial allocations, executing infrastructure programmes often have poor outcomes, owing to ineffective State institutions. Given the substantial mandate and resources at its disposal, the State’s underperformance raises serious concerns. The capacity and credibility of South Africa’s institutions were significantly undermined during the tenure of the Jacob Zuma administration. While the Cyril Ramaphosa administration is making concerted efforts to enhance various aspects of the State, the process of recovery is anticipated to be protracted. One of the detrimental outcomes of State capture is nepotism, resulting in the appointment of unqualified individuals, especially at municipal level. 5.2 Failure to implement programmes The government’s inability to effectively implement its own programmes, as is evident in the National Development Plan: Vision 2030 (NDP), is akin to a corporate CEO failing to execute any part of a strategic vision, a situation that typically results in career repercussions. The Public Sector seems immune from such repercussions. The NDP seeks to address the triple challenges of poverty, unemployment and inequality. A recent ten-year review of the progress made since the adoption of the NDP in 2012 indicates that the vision for the future expressed in the plan has not materialised over the past decade. Significant strides were made in poverty reduction between 2006 and 2011, with the poverty rate declining from 51% to 36.4%, but subsequent years have witnessed a troubling reversal of the trend, with income poverty resurging to 40% by 2016 (National Planning Commission, 2023). South Africa is also falling short of its targets for reducing inequality targets as outlined in the NDP. The NDP’s aim is to achieve greater income equality by decreasing the Gini coefficient (measured by income) from 0.69 in 2010 to 0.60 by 2030. Inequality rose substantially between 1994 and 2006, with the Gini coefficient expanding by about 0.05 points. Although millions were lifted out of abject poverty between 2006 and 2015, more substantial benefits skewed towards higher income groups. While there was a brief reduction in inequality between 2006 and 2009, no substantial progress has been made since then (National Planning Commission, 2023). Meeting the NDP’s unemployment reduction targets appears increasingly unlikely, mainly owing to persistently low and sluggish economic growth. The NDP originally aimed to slash unemployment from 35.4% in 2010, to 20% by 2015, 14% by 2020, and 6% by 2030. The initial goal for 2015 necessitated the creation of 2.2-million jobs between 2010 and 2015, equating to an average of 436 000 jobs a year. Achieving this would have relied on an average gross domestic product (GDP) growth rate of 4.6% a year. The rate of job creation between 2010 and 2015 was robust and created the required jobs. However, as GDP growth slowed, job creation dwindled, with only 364 000 jobs created between 2015 and 2017. The interim milestone would have required employment to reach 16.8-million, but instead, it only reached 16.2-million (National Planning Commission, 2023H). The challenges in meeting the NDP unemployment reduction targets are closely linked to the broader economic landscape in South Africa, including the construction industry’s employment-creation role. The industry is historically known for being a major employer, especially for low-skilled and semi-skilled workers. However, the prevailing sluggish economic growth in South Africa has had a detrimental impact. It has caused delays in construction projects or a reduction in scale, limiting the number of job opportunities available within the industry. Budget constraints in public infrastructure spending have further hampered industry’s ability to serve as a substantial source of employment. According to Statistics South Africa, there were 118 000 construction job losses between June 2017 and June 2020. The total number of persons employed at the end of June 2020 amounted to 473 000 – a 20% decrease when compared with the workforce tally at the end of June 2017, which stood at 592 000. Notably, substantial declines were observed in both the civil engineering structures and buildings segments of the industry (Statistics South Africa, 2022). In 2023, investment in renewable energy projects has begun to show signs of the situation beginning to turn around for the South African construction sector. 5.3 SoE financial constraints The financial constraints facing State-owned enterprises (SoEs) have a detrimental impact on infrastructure development in the country. These constraints limit the government’s ability to allocate funds to critical projects and maintenance, hindering the overall effectiveness of infrastructure development initiatives. While the recapitalisation of SoEs is a positive development, the efficacy of these institutions relies heavily on the appointment of competent board members and the establishment of clear roles and responsibilities. Failing to differentiate between the roles of board and Ministerial functions lead to confusion and overlap in decision-making. 5.4 Budget underspending Government has repeatedly expressed its commitment to expanding infrastructure delivery. In the 2023 Budget, it has increased expenditure across various facets of public infrastructure. A significant portion is allocated to national roads, amounting to R48-billion a year over the 2019 to 2024 medium-term expenditure framework (MTEF). Additionally, provisions for the maintenance of provincial roads amount to another R12-billion a year. It is important to note that this budgetary growth lags the inflation rate. The budget for local and regional water infrastructure has grown rapidly, increasing from R8-billion in 2019 to a planned R17.1-billion in 2025. Spending on national water infrastructure is smaller at around R3.5-billion a year on average over the MTEF. In ontrast, spending on human settlements infrastructure is stagnant. Provinces spent R20-billion on housing in 2017, yet by 2025, the Budget plans only R20.5-billion (Sachs et al, 2023). Despite increased allocations, SoEs and public entities consistently fall short of effectively using their budget. Although not a phenomenon unique to South Africa, as literature shows that other countries also struggle with the same issue, chronic budget underspending has far-reaching implications, contributing to project delays, stunted economic growth and diminished opportunities for the construction industry. Between 2015/16 and 2017/18, SoEs and public entities spent less than 75% and 65% of their infrastructure budgets, respectively. The State as a whole spent less than 85% of its available infrastructure budget (Altman, 2023). The core of the underspending issue lies in complex procurement processes, notably relating to noncompliance with supply chain management (SCM) policy and regulations, alongside insufficient monitoring and evaluation of SCM policy adherence (Jantjies, 2023). 5.5 Inappropriate SCM and procurement practices The challenges associated with SCM and procurement within the public sector have been widely documented, underscoring the urgency of addressing this issue. One of the biggest problems of procurement is its design. Under the Public Finance Management Act (PFMA) and the Municipal Finance Management Act (MFMA), an accounting officer or accounting authority is mandated to establish a SCM unit within the office of an institution’s chief financial officer for SCM implementation. The current system places a disproportionate emphasis on financial management, neglecting the critical aspect of efficient project delivery. It has downgraded procurement into an administrative function. The PFMA and MFMA view procurement solely as part of SCM. The current public procurement system emphasises compliance checklists. The focus should include delivering value for money, a strategy that inherently reduces the scope for corruption. This reframing of the procurement processes is important for building trust with suppliers. The current SCM system constrains procuring institutions from effectively managing the interdependencies between contracts. The lack of control over the procurement process, including appointments, creates challenges. This misalignment with the PFMA and the MFMA further exacerbates the issue. Additionally, the system separates institutional decision-making from specialised professionals, such as built environment professionals, allowing individuals with clerical roles to manipulate the entire process. A shift towards value for money and integrating professional expertise could significantly change the current circumstances. 5.6 Tardy tender processes Most of the public sector tenders issued are not being awarded, leaving them in a state of pending or cancelled. National Treasury’s database shows that between September 2022 and September 2023, 64 091 tenders have been published across all spheres of government and that 16 253 have been awarded (Treasury, 2023b). What compounds the issue is the prolonged period it takes for these tenders to be awarded, which poses significant challenges for resource planning. 5.7 Delivery performance deficiencies Alongside underspending, numerous instances of cost overruns, delayed delivery and subpar value for money have been observed. Examples of overbudget projects are well documented and include the Gautrain Rapid Rail System (original budget: R6.8-billion, final cost: R25.2-billion), Transnet’s New Multi-Product Pipeline (original budget: R12.7-billion, final cost: R30.4-billion) and the Medupi and Kusile power stations, among others. 5.8 Construction mafia The construction mafia, or so-called ‘business forums’, first reared its head in KwaZulu-Natal in 2014 and 2015, invading construction sites to demand a share of projects, or that companies employ specific people or subcontractors. By 2018 and 2019, the practice also emerged in other provinces, with these forums often touting heavy-calibre weapons as they made their demands. A similar model of extortion has since spread to other industries, most notably mining. Much of the violence has subsided in KwaZulu-Natal, but it does not mean that illegal activities have stopped. Rather, extortion has become normalised and yet another cost of doing business in South Africa (Venter, 2023). Different interpretations of laws and regulations regarding localisation have created room for this criminal element to develop. Business forums are demanding 30% of the contract value be allocated to forum members, or directly to the forum itself. This figure appears to be derived from the National Treasury’s Preferential Procurement Policy Framework Act. The Act states that 30% of public procurement contracts should be contracted to designated groups, as provided for in the Preferential Procurement Regulations. National Treasury has condemned this practice as illegal (Venter, 2023). While law enforcement undoubtedly plays a role in addressing the problem, it is equally imperative to acknowledge that the rise of these mafias can be attributed to the inadequacy of effectively empowering local communities. The situation has been exacerbated by the lack of robust local government institutions equipped to handle conflict resolution, compounded by the opportunistic actions of certain local political leaders. This complex dynamic mirrors the fragmented state of politics in South Africa, where not only is the ruling party, the African National Congress, facing internal challenges, but fragmentation is also prevalent among opposition parties. 6. Recommendations 6.1 Support rebuilding State capacity The construction industry must maintain its commitment to supporting government to enhance capacity and ensure its specialised involvement in initiatives such as certification requirements and institutional strengthening. The construction industry must actively participate in national drives, such as the CEOs Pledge, to help improve State capacity. It is a collective decision to make a difference and to focus on actions that can bring about change. Industry leaders are encouraged to actively engage, to adopt a positive mindset and to refrain from mere criticism. For those with extensive experience, it is an opportune time to lend a hand and assist in execution, provided such support is welcomed. Robust executive management and technical proficiency within the State and its entities will foster stability and empower them to lead and execute with confidence. A particular emphasis must be given to developing state capacity for project design and execution. 6.2 Professionalise the public service Professionalise the public sector by investing in skilled and experienced public servants to enhance delivery outcomes. Employ professionals registered with built-environment bodies and councils. A professional public service cohort will ensure projects are managed more efficiently, transparently and comply with best practices. Addressing the issue of unqualified employees, especially at municipal level, requires an independent forensic audit of CVs to ensure qualifications and experience are accurate. Swift action, such as immediate dismissal for falsified credentials, can remedy the problem and allow for the recruitment of qualified personnel. While skills shortages exist in many municipalities, this issue is fixable. 6.3 Elevate project leadership Client delivery managers, possessing the requisite certifications and expertise, should spearhead infrastructure projects. This will ensure not only streamlined execution, but also establish a single point of accountability. 6.4 Transform supply chain management Transform infrastructure supply chain management (SCM) into a strategic function, shifting its role from being merely a clerical back office or financial/administrative task. By recognising SCM as a strategic driver, it becomes a crucial element in project planning, execution and success. 6.5 Reimagine procurement Infrastructure procurement should be decoupled from centralised purchasing systems. Instead, it should be overseen by a dedicated chief procurement officer or a high-level office specifically designated and equipped with a team of built environment professionals. This approach ensures that procurement processes are tailored to the unique demands of infrastructure projects, fostering efficiency, transparency and optimal project outcomes. 6.6 Establish effective delivery management systems To effectively implement the National Infrastructure Plan 2050, clients must put in place procurement and delivery management systems that provide governance processes. Establish clear delegations of authority to enable timeous decision-making and individual or organisational accountability for infrastructure delivery. Provide for the assignment of single-point accountability to a suitably qualified and experienced built environment practitioner to provide executive level leadership in the planning, specifying, procuring and overseeing functions. Recognise that infrastructure procurement is a central competency of those responsible for delivering infrastructure. 6.7 Prioritise value for money Prioritise ‘value for money’ over ‘least-cost’ considerations throughout the project lifecycle, recognising that a strategic approach not only enhances the project’s immediate performance, but also ensures long-term sustainability and benefits for all stakeholders. This shift in focus allows for comprehensive planning, robust risk management and the creation of infrastructure that truly serves the country’s needs. 6.8 Delegate essential functions Government entities incapable of efficiently spending their budgets should be mandated to delegate essential functions to other capable organs of State. This approach is particularly relevant in instances such as municipal water management, where a monopoly function exists, but the existing State entity struggles to fulfil its responsibilities. 6.9 Leverage the private sector In a shift from outdated government infrastructure ideologies, it is suggested that private sector efficiencies should be leveraged. Although it may challenge prevailing government norms, privatising key infrastructure assets, such as the coal line from Mpumalanga to Richards Bay, KwaZulu-Natal, has the potential to accelerate much-needed improvements, potentially addressing issues within a shorter time frame. A framework should also be developed to facilitate large-scale private sector investment in the country’s electricity transmission grid. The public-private partnership model must be streamlined for improved feasibility and user-friendliness. 6.10 Boost construction confidence While government-led infrastructure projects play a pivotal role in stimulating the construction industry, the contribution of private sector capital formation is equally indispensable. Rebuilding confidence in South Africa, its leadership, and its economic prospects is imperative to catalyse growth in the commercial and residential building and construction sectors. 6.11 Tackle the construction mafia Differentiate between genuine community concerns and criminals involved in extortion for their own gain. While law enforcement must be mandated to deal effectively with criminal elements, it is essential that local government institutions step up to the plate and take responsibility for negotiating mutually beneficial solutions. 7. Conclusion The decline of the South African construction sector is symptomatic of broader economic stagnation, characterised by inadequate investment levels, dwindling confidence and a surge in organised crime activities. To move forward, a multifaceted approach is needed. Policy changes must prioritise development of State capacity, professionalisation of the public service and transformation of supply chain management and procurement practices. These changes will create an environment for efficient project design and execution. Further, addressing the challenges posed by the construction mafia demands urgent attention. Collaborative efforts between government, industry and community stakeholders, as well as law enforcement, are necessary to combat the problem. Efforts should also be directed towards enhancing economic infrastructure, particularly railway infrastructure, and effectively addressing the prevailing energy crisis. Embracing opportunities presented by ongoing large-scale investments in renewable energy projects can be a cornerstone for industry revival. The removal of the 100 MW cap on private energy generation has resulted in a strong uptick in construction activity, as would planned investment in the country’s national electricity transmission grid. Given that economic growth is stifled due to the lack of funding, creative and innovative funding mechanisms need to be developed to fast-track economic infrastructure development. Public Private Partnerships (PPPs) and Build Operate Transfer (BOT) need to be deployed at a far larger scale. The government should revisit its public debt to GDP policy, by being more flexible with regard to higher debt levels attached to infrastructure investment. Given the economic urgency, special legislation similar to that during the 2010 Soccer World Cup ought to be considered to fast-track a major overhaul of the country’s economic infrastructure. Further research and economic modelling in this regard is recommended. 8. References Altman, M. 2023. The infrastructure drive in SA and the potential for greater construction sector dynamism, August 5, 2023. Cape Town. Jantjies, D. 2023. Government underspending analysis 2011/12 to 2022/21: The case studies of the Departments of Health and Social Development, March 2023. [Online]. Available at: https://static.pmg.org.za/2300308March_2023_Government_underspending_analysis_2011_-_2021_the_case_studies_of_the_Departments_of_Health_and_Social_Development.pdf [accessed September 9, 2023]. Masondo, D. 2023. Remarks by Deputy Minister of Finance David Masondo at the Inclusive Society Institute Construction Summit, August 8, 2023. Cape Town. National Planning Commission. 2023. A review of the National Development Plan 2030: Advancing implementation towards a more capable nation, August, 2023. [Online]. Available at: www.nationalplanningcommission.org.za/assets/Documents/NDP%20REVIEW.pdf [accessed September 11, 2023]. National Treasury. 2023. Budget Review, 2023. [Online]. Available at: https://www.treasury.gov.za/documents/national%20budget/2023/review/FullBR.pdf [accessed September 7, 2023]. National Treasury. 2023. eTender, September 9, 2023. [Online]. Available at: https://data.etenders.gov.za [accessed September 9, 2023]. South African Institution of Civil Engineering, 2022. SAICE 2022 Infrastructure Report Card for South Africa, November 2022. [Online]. https://saice.org.za/downloads/SAICE-2022-Infrastructure-Report-Card.pdf [accessed September 10, 2023]. Statistics South Africa. 2022. Construction industry, 2020, June 27, 2020.[Online]. Available at: https://www.statssa.gov.za/?p=1548 [accessed September 7, 2023]. Statistics South Africa. 2023. Quarterly Labour Force Survey, Q2:2023, August 15, 2023. [Online]. Available at: https://www.statssa.gov.za/publications/P0211/P02112ndQuarter2023.pdf[accessed September 7, 2023]. Swanepoel, D. 2023. South Africa country brief: A socio-economic and political prognosis, September 25, 2023. Stockholm. Venter, I. 2023. Is SA Inc fighting the construction mafia, or adapting to incorporate it?,Engineering News, June 27, 2023. [Online]. Available at: https://www.engineeringnews.co.za/article/is-sa-inc-fighting-the-construction-mafia-or-adapting-to-incorporate-it-2023-06-27#:~:text=The%20construction%20mafia%2C%20or%20so,employ%20specific%20people%20or%20subcontractors [accessed September 11, 2023]. World Bank. 2023. National Accounts Data, and OECD National Accounts data files. [Online]. Available at: https://data.worldbank.org/indicator/NV.IND.TOTL.ZS [accessed September 7, 2023]. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - This report has been published by the Inclusive Society Institute The Inclusive Society Institute (ISI) is an autonomous and independent institution that functions independently from any other entity. It is founded for the purpose of supporting and further deepening multi-party democracy. The ISI’s work is motivated by its desire to achieve non-racialism, non-sexism, social justice and cohesion, economic development and equality in South Africa, through a value system that embodies the social and national democratic principles associated with a developmental state. It recognises that a well-functioning democracy requires well-functioning political formations that are suitably equipped and capacitated. It further acknowledges that South Africa is inextricably linked to the ever transforming and interdependent global world, which necessitates international and multilateral cooperation. As such, the ISI also seeks to achieve its ideals at a global level through cooperation with like-minded parties and organs of civil society who share its basic values. In South Africa, ISI’s ideological positioning is aligned with that of the current ruling party and others in broader society with similar ideals. Email: info@inclusivesociety.org.za Phone: +27 (0) 21 201 1589 Web: www.inclusivesociety.org.za

On Monday, 30 October 2023, the Inclusive Society Institute briefed a Swedish delegation led by ACCESS Sweden on the state of socio-economic and political affairs in South Africa. The briefing took place at the offices of Deloitte in Cape Town. ACCESS is devoted to building and strengthening the good relations between the peoples of Sweden and South Africa. The delegation visited South Africa for the purposes of carrying out said objective and to learn and inform themselves about the current state of affairs in the country.

Recent polls from various institutes suggest that South Africa is heading for coalition government, possibly at the national level, but certainly at the provincial level of government. To this end, given the long historical experience of coalition governments in Finland, the Inclusive Society Institute (ISI) hosted a panel discussion via webinar on Coalition Government: Lessons from Finland. Following the opening remarks of HE Anne Lamilla, Ambassador of Finland to South Africa, and a presentation of recent party support polling data by ISI CEO Daryl Swanepoel, three prominent experts on Finnish Coalitions, made presentations, which were followed by lively discussions. Ms Liisa Laakso, from the Nordic Africa Institute, spoke on Multi-Party Government: Sharing power or building a coalition? Ms Virva Viljanen, from Demo Finland, spoke on the legal framework and best practices of coalition government in Finland. And Prof Jenni Karimäki, from the University of Helsinki, spoke on Finnish traditions regarding the building and maintenance of coalition government.

The Inclusive Society Institute hosted a panel discussion aimed at assessing the impact of the Construction Mafia on the South African economy. The event was held on 11 October 2023 at the offices of Deloitte in Midrand, Johannesburg. This follows the high-level Construction Summit hosted by the Institute on 8 August 2023 in Cape Town, which included speakers from both the private and public sectors, including a keynote address by the Deputy Minister of Finance, Hon. David Masondo MP. One area identified during the summit requiring further attention was the problem of the ‘Construction Mafia’. It was decided to delve further into this, thus the panel discussion. Speakers included: Mr Webster Mfebe, Chief Executive Officer of the South African Forum for Civil Engineering Contractors Mr Gareth Newham, Head of the Justice and Violence Prevention Programme, Institute of Security Studies Brig Lucas (NL) Ramangwa, Section Head: Special Operations and Investigations, South African Police Service

The 17th International Winelands Conference took place in Stellenbosch on 16, 17 and 18 October 2023. This year’s theme was: “Re-imagining Public Servant Leadership in a post-capture, post-pandemic governance landscape”. The Inclusive Society Institute attended the conference and was represented by Dr Klaus Kotzé who delivered a working paper titled “Re-imagining governance in South Africa: Putting the Constitution first”. The paper recognises governance shortfalls, while seeking to conceptually investigate where we come from in order to better conceive preferable pathways and modalities for future governance. The paper pursues the ongoing work that the Institute is doing to amplify the centrality of Constitutional principles in governance and civil society. It was therefore opportune to present the paper to an audience of practitioners and experts at a conference focusing on public servant leadership, a key principle espoused by the Constitution and amplified in the paper. The conference was hosted Prof Zweli Ndevu, Director: School of Public Leadership at Stellenbosch University and Deputy Chairperson of the Inclusive Society Institute. When asked, Prof Ndevu expressed his utmost satisfaction with the proceedings. He highlighted that it was the variety of speakers, representing different sectors, including academia, the public and civil service that contributed to the event’s success. Various delegates mentioned their appreciation for the critical approach of the conference proceedings, which opened space for creative suggestions to South Africa’s urgent crises. In the final plenary, the Prof Mark Swilling suggested that whereas past conferences called for a global rethink on the role of the state, that this process had now begun in full earnest. The Institute will continue playing an active role in pursuing a unified sense of purpose that places the Constitution central to South African governance.

The Inclusive Society Institute (ISI) led an economic delegation to China with the objective of gaining a deeper understanding of the Belt and Road Initiative (BRI) and the Special Economic Zones regime of China. The delegation attended the Belt and Road CEO Conference that was held on 17 October 2023 at the China National Convention Centre in Beijing. The conference was addressed by a number of high-level speakers including China’s Vice Premier, He Lifeng. The Beijing Declaration of the Belt and Road CEO Conference captured five principles: Adhering to openness and cooperation Deepening connectivity cooperation Adhering to green development Promoting cooperation in the digital economy Adhering to lawful operation and fulfilling…[of enterprises] social responsibility The delegation then travelled to the cities of Xian and Baoji in the Shaanxi province where they inter alia met with the President of the China Council for the Promotion of International Trade Shaanxi province, Madame Ma Yuhong. And in Baoji the CCPIT hosted a Business Seminar, which focussed on Special Economic Zones (SEZs) in Baoji. They also arranged a tour of a number of industries located within the SEZs..

The CEO of the Inclusive Society Institute attended a dialogue on South African perceptions of China’s Belt and Road Initiative (BRI) that was hosted by the Institute for Global Dialogue (IGD). The dialogue took place at the Sheraton Hotel in Pretoria on 12 October 2023. The dialogue was presented through the China-Africa Joint Research and Exchange Programme.

Occasional Paper 9/2023 Copyright © 2023 Inclusive Society Institute PO Box 12609 Mill Street Cape Town, 8010 South Africa 235-515 NPO All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means without the permission in writing from the Inclusive Society Institute. DISCLAIMER Views expressed in this report do not necessarily represent the views of the Inclusive Society Institute or those of their respective Board or Council members. OCTOBER 2023 by Prof William Gumede Former Programme Director, Africa Asia Centre, School of Oriental and African Studies (SOAS), University of London; former Senior Associate Member and Oppenheimer Fellow, St Antony’s College, Oxford University; and author of South Africa in BRICS (Tafelberg). Introduction The BRICS New Development Bank (NDB), a new anchor institution of the trade alliance, will have to re-examine its role, model, and activities, after struggling to expand as rapidly as envisioned, battling to secure more diversified funding and failing to effectively challenge Western-dominated multilateral development financial institutions as intended at its launch. The BRICS New Development Bank, formerly called the BRICS Development Bank, appointed former Brazilian President Dilma Rousseff as president of the bank in March this year, to provide fresh leadership to the organisation. Strengthening the capacity of the NDB, refining its role and structure, was at the top of the agenda of the recent BRICS summit in August. The Shanghai-based NDB was established in 2015 with US$10 billion in paid-in share capital from each member of the BRICS trade alliance – Brazil, Russia, India, China, and South Africa – which was founded in 2009. The idea behind forming the NDB was to challenge the existing Western-dominated global financial institutions, such as the World Bank and International Monetary Fund (IMF), in providing lending to developing countries (Woods, 2006). Simultaneously, the BRICS countries also established a Contingent Reserve Arrangement (CRA), with a commitment of US$100 billion, to provide “a framework for the provision of support through liquidity and precautionary instruments in response to actual or potential short-term balance of payments pressures” among BRICS members. This was a direct challenge to the IMF. The Asian Infrastructure Investment Bank was also set up by China to counter the Western-dominated global financial institutions. BRICS and other developing countries have criticised global financial institutions, such as the World Bank, IMF, and World Trade Organization (WTO) for excluding them in shareholding, decision-making, representation voting, and ideas. BRICS have called “for the reform of international financial institutions to make them more representative and to reflect the growing weight of BRICS and other developing countries”. The BRICS members aim to reshape global power, to counterbalance the dominance of the US and Western countries and to give the Global South more power in relation to the West in multilateral institutions such as the United Nations (UN), World Trade Organization and World Bank, and the IMF – which are dominated by Western countries. BRICS also plan to create, and have tried to set up, their own alternative development organisations to rival Western-dominated international financial, trade and political institutions. Trying to forge a development bank for developing countries, rather than just for BRICS countries The New Development Bank is a key part of the BRICS development strategy to challenge Western-dominated global hegemony. Headquartered in Shanghai, the bank has US$50 billion in subscribed capital. However, the bank has been hoping to raise capital from new members. Currently, the bank has eight member countries and only loans to members, despite envisaging at its launch that it would lend to members and non-members. The only new members, outside BRICS, since 2021 are Egypt, United Arab Emirates, and Bangladesh. Uruguay is in the process of being admitted, and the bank is considering applications from 15 other countries that have applied for membership. Rousseff has stated the bank’s ambition to forge a development bank for developing countries – what she calls “a bank made by developing countries for themselves”. A previous developing country effort to create a successful alternative to the World Bank, the Banco del Sur (Bank of the South), failed to do so (Chandrasekhar, 2014). Leslie Maasdorp, the CFO of the bank, said: “The intention has always been to create a global bank anchored in emerging markets.” The bank’s aim is to lend to, without attaching political conditions such as good governance, structural adjustment, or using the staff or businesses of the lender as part of its loans, to distinguish itself from the World Bank, IMF, and Western lenders. Many developing countries have criticised Western lenders for placing onerous conditions on lending requirements to developing countries, such as insisting countries must introduce neoliberal economic policies – including often extreme austerity measures – use Western advisors and companies, and vote in global multilateral institutions in tandem with Western countries (Bond, 2001; Woods, 2006; Green & Kalomeris, 2015). While the bank may say it will not demand political conditions for its loans, the challenge is going to be for the bank to apply financially responsible conditions, to ensure its grants are prudently used, for the purposes intended, and to extract remedies when lending is abused. Development banks provide funding to large development projects deemed too risky for the private sector. Because of this, they need to put stringent performance measures, financial oversight, project feasibility measures, market analysis, and funds audits in place to ensure the funds provided are prudently used, given that the funded project is already high risk (Gumede et al, 2011). Another challenge for the bank is commercial sustainability, particularly since it sources large amounts of its funding from the markets. The one condition the NDB requires for its loans, is that governments must guarantee the loans they give to domestic state development projects – such guarantees help bring down borrowing costs and lends credibility and authority to the bank. Nevertheless, as eminent Indian economist Chandrasekhar (2014: 10) has warned: “Any form of socially concerned lending that does not yield a return adequate to cover costs and deliver at least a nominal profit will be ruled out (by the NDB). There is only so much an institution whose activities are constrained by market realities can do.” Robust social, economic, and environmental impact assessments are fundamental. Green and Kalomeris (2015) perfectly sum up the challenge for the NDB: “On one hand, the bank can be seen as an alternative to the Western-based conditionality of existing institutions. MDB loan conditions are often called excessive or even hypocritical when requirements exceed the actions of the lender at a similar point of development. On the other hand, if it supports projects with controversial environmental, social, or corruption concerns, the NDB is left open to criticism.” Green and Kalomeris (2015) argue the NDB will have to make sure “that conditionality is prudential, rather than political, is a prerequisite”. Finally, it is moot whether the NDB will be more robust in its respect for the environment, dignity of communities, good governance, and human rights in its development projects than traditional Western lenders. Civil society organisations, the media, and human rights activists in BRICS will have to hold the bank accountable. However, with only three of the founding members – Brazil, India, and South Africa – being democracies, and the rest not, and with a number of new members also likely not to be democratic, it is going to be an uphill battle. Nevertheless, it is crucial that civil society organisations, the media, and human rights activists in the developing world hold the bank accountable to uphold sustainability, good governance, and human rights. New members joining the bank The NDB has struggled to expand to large numbers of emerging markets – from its core five founding members. The bank has expressed as a priority its intention to expand its geographic representation, which compares poorly to other development banks. For example, the Asian Infrastructure Investment Bank, which was launched in 2016, has 106 members, including 45 members outside Asia and 23 European countries. Dilma Rousseff, the president of the NDB, said the bank was reviewing applications for membership – which is open for members of the United Nations – from about 15 countries. Bringing in new members is critical for the bank to diversify its project portfolio, mobilise capital and to de-dollarise. The bank is keen to get new members to increase its capital base, and it wants to increase fundraising in member currencies, to reduce its reliance on the US dollar. The entry in January 2024 of six new BRICS members – Argentina, Egypt, Ethiopia, Iran, Saudi Arabia, and the United Arab Emirates – in particular the petrodollar countries, who will also become members of the bank, will not only boost the geographic representation of the bank, but may bring in much-needed fresh capital and projects. Saudi Arabia, for example, is the largest economy in the Middle East and is one of 18 countries in the world with a gross domestic product larger than US$1 trillion. The US is the largest, with US$23 trillion, China second, with US$17.5 trillion, and Japan third, with US$4.9 trillion. Currently, Russia is the only large oil producer in BRICS. The fact that large oil producers such as Saudi Arabia, United Arab Emirates, and Egypt will be joining BRICS, means the group will dominate the world’s energy supply. The strength of the US dollar is partially based on the currency underpinning oil trade – the so-called petrodollar – and members of OPEC (Organisation of the Petroleum Exporting Countries) settle their accounts in US dollars. Therefore, if the petrodollar BRICS members trade with their own currencies within BRICS, it could substantially accelerate the de-dollarisation of the world. The bank’s shareholder governance structures provides that the five founding members will retain the majority voting power and the senior board and executive positions. The BRICS jointly hold the majority share of 55% of the bank, with each founding member having an equal voting share. The founding agreement stipulates that the NDB leadership will be rotated among the shareholders. The bank tries to make decisions based on consensus. However, there are fears that China, which has provided the most capital so far, will necessarily dominate decision-making in similar ways to how, for example, the US or Europe dominates the World Bank or IMF. Furthermore, a big challenge for the NDB will be whether it can maintain institutional independence from its shareholders – in order to make decisions based on developmental sustainability, rather than on political motivations. Many developing countries’ domestic development banks have failed because decisions to lend are often based on political patronage considerations, rather than on purely developmental, sustainability and growth reasons, leading to unsustainable, poor quality and low development impact projects. Nevertheless, new members may not be happy to take backseats in decision-making and management – and the bank may have to relook its governance statutes to give new members equitable say. The bank, therefore, will have to find a way to include new members in decision-making, voting and representation – if it does not want to run the risk of being accused of also being dominated by the founders in the same way Western countries dominate global financial institutions such as the World Bank and IMF. Western sanctions against Russia have undermined the NDB’s operations Western sanctions against member Russia because of its war on Ukraine have also undermined the NDB’s operations, its ability to expand more rapidly and to secure more diversified funding. In fact, the bank suspended all its activities in Russia, fearing Western sanctions – Russia holds 19.4% of the bank’s capital. Fitch, the rating agency, downgraded the bank’s debt from AA+ to AA last year, because of Russia’s holdings in the bank, saying that the bank “could face challenges to issue a long-term bond on US capital markets”. In May this year, Fitch changed the bank’s outlook to stable following the bank’s successful issuing of a US$1.2 billion green bond. The impact of the Russia-Ukraine war on the BRICS development bank is forcing a rethink of the role of the bank. BRICS countries now want the bank to play a central role in de-dollarising the global markets. However, the bank is heavily dependent on US capital markets, with the majority of the bank’s capital, around 70%, in US dollars. The bank could not issue a US$1.06 billion Russian bond after it set up a rouble programme in 2019, because of Western sanctions against the country. Sanctions against Russia have also increased the bank’s borrowing costs – particularly US dollar-based transactions. As a case in point, a five-year US$1.5 billion bond issued by the bank in 2021 had a 1.125% coupon; but two years later a similar five-year bond had a 5.125% coupon, making the bank more expensive than other development banks. Because of the increase in the costs of the bank’s lending, it reduced its new lending. The bank only lent US$1 billion loans in 2022 – partially as a result of the impact of the Russia-Ukraine war. The bank’s CFO, Leslie Maasdorp, told Reuters that, because “of the capital market challenges of 2022, and in an endeavour to preserve the bank’s core financial ratios, there was indeed a slowdown”. The bank’s role in de-dollarisation of the global economy BRICS economies are seeking to reduce the use of the US dollar in trade. Russia is proposing that the New Development Bank (BRICS Bank) should become a clearing centre for a BRICS common currency. “We are ready to discuss them within the New Development Bank framework that may become a kind of clearing centre. This is not the core business for the bank now but this is [also] not the main obstacle to solve the task,” according to Russia’s Finance Minister, Anton Siluanov. Brazil’s President, Lula da Silva, has also put forward that the BRICS bank become a clearing house for a proposed BRICS common currency. “Why can’t an institution like the BRICS bank have a currency to finance trade relations between Brazil and China, between Brazil and all the other BRICS countries?” Lula asked early in the year during a visit to the BRICS bank’s head office in Shanghai (Bloomberg, 2023a). The bank is planning to increase its lending in local currencies, to reduce its reliance on using the US dollar as the dominant currency of transactions. Using local currencies not only strengthens local markets, but it also shields local borrowers from currency fluctuations. The currencies of many developing countries are not convertible, which causes their economies to suffer disproportionally from currency fluctuations. Two-thirds of the NDB’s loan book was in US dollars; currently only 22% of the bank’s transactions are in local currency. The bank wants to increase it to 30% by 2026, and therefore, will push for local currencies to be used more in trade between BRICS countries. The idea is that BRICS members should be able to use their own currencies to finance projects or do trade in other member countries. Leslie Maasdorp, the CFO of the bank, said the reality was that the US dollar was where the largest pool of liquidity is (Sguazzin, 2023). The bank is aiming to increase the use of local currencies to not only reduce the risks of foreign exchange fluctuations, but also as part of the BRICS trade alliance’s strategy to de-dollarise. Most developing countries use the US dollar to trade, borrow and price the commodities they produce. Their economies are therefore sensitive to changes in US monetary policy, which affects the value of the dollar, as it directly impacts on them. Many BRICS members have dollar-denominated debt, which has increasingly become expensive to service, because the US central bank often raises interest rates to counter downturns in its domestic economy. This then destabilises the economies of developing countries, who predominantly trade in US dollars. In the 18 months up to 26 July 2023, the US Federal Reserve, its central bank, had raised its interest rates up 5.25 percentage points – an aggressive strategy, which has destabilised the economies of many developing countries (Bodea, 2023). It has forced foreign capital flows from developing countries to the US where it would be more attractive for them. This depressed the currencies of many developing countries, who are then forced to copy US interest hikes, also destabilising their domestic economies, causing, for example, recessions of their interest rates, which are already high. In addition, many developing countries export or import commodities that are priced in US dollars. Exchange rate fluctuations therefore impact on their imports and exports. And since many developing countries have their debts in US dollars, this means that servicing debts becomes more expensive if their domestic currencies depreciate against the US dollar. Many developing countries also borrow in US dollars – meaning their borrowing costs will also be more expensive. David Malpass, former President of the World Bank, in April 2023, said that around 60% of lower-income countries are at high risk of debt distress – and thus, are severely impacted by US interest rate hikes. Lending in local currency would reduce foreign exchange fluctuations and risks for BRICS members; and will decrease the negative impacts of US domestic interest rate variations, which cause fluctuations in the US dollar, undermining US dollar-based transactions around the globe. The value of the US dollar has increased in relation to most emerging market currencies since the start of the Russia-Ukraine war, after the US central bank increased interest rates to tackle domestic inflation in 2022. This has increased the servicing of US dollar debt for developing countries. Vladimir Kazbekov, the chief operating officer of the NDB, explained how localisation of currencies would work. “A project in South Africa can be financed in the [Chinese currency] renminbi, not with US dollars. This would be done especially with projects that require the importing of parts, which would be cheaper to use local BRICS currencies than using US dollars,” Kazbekov said (Mahlaka, 2023). As part of this new strategy to de-dollarise, the bank will, in 2023, lend in the South African, Brazilian, and Indian currencies – either through currency swaps or debt issuing (Bloomberg, 2023b). Two years ago, the bank made a commitment to provide US$3 billion to finance South Africa’s “Just Transition” from coal to renewable energy. However, South Africa has been unable to provide the projects to finance. In 2019, the bank registered an initiative to sell R10 billion in debt on the Johannesburg Stock Exchange. The bank issued its first South African debt sale in 2023 when it sold R1.5 billion in bonds. The NDB closed the auction of the rand-denominated bonds on 15 August. The South African bond auction raised R1.5 billion, which will be used to fund development, infrastructure, and industrialisation initiatives in the country. The NDB also plans to fund South Africa’s ailing state-owned entities, but will provide funding to private companies too, it says. The bank is already lending in Chinese currency, the yuan. In fact, more than half of the bank’s lending has been in yuan. Most of the bank’s funding has been from the Chinese market, using the proceeds from issuing yuan-dominated bonds in the Chinese market to fund projects. In May 2023, the bank raised 8.5 billion Chinese yuan (US$1.20 billion) through a so-called Panda bond transaction, with the proceeds being invested as part of the bank’s liquid assets. The Bank of China was the lead underwriter of the bond. Up to 100 percent of the net proceeds from a Panda bond, or yuan-denominated bond – which were first issued in 2005 – may be remitted offshore in yuan and converted into other currencies. The bank is now planning to register to issue bonds in Indian rupees to the tune of US$2.5 billion over five years. Typical new projects funded The NDB’s mandate allows it to “support public or private projects through loans, guarantees, equity participation and other financial instruments”. The bank has an authorised capital of US$100 billion. Since its launch, it has approved 80 projects in all of its member countries, translating into a portfolio of US$30 billion. The projects cover transport, water and sanitation, clean energy, digital infrastructure, social infrastructure, and urban development. The bank aims to channel 40% of its lending to climate-related projects. Since the Russia-Ukraine war, the bank has stopped lending to Russia, for fear of Western sanctions. The largest proportion of the bank’s lending is to South Africa, which makes up more than 18% of the bank’s total loans of US$33 billion. The NDB has announced it would provide Transnet, the South African state-owned logistics company, with a loan facility of US$1 billion by the end of 2023 for the modernisation of the Transnet fleet and locomotives. The NDB has given the loan to Transnet on condition that the South African government stands as guarantee for the full loan. Transnet posted an annual loss of R5.7 billion (US$304 million) for the 2022/2023 financial year. The SOE’s debt has ballooned to R130 billion – it is paying R1 billion a month to service this debt pile (Jacobs, 2023). At this rate, the chances are high that Transnet will default on its debt repayments in the future. If this is the case, the government will have to repay the Transnet NDB loan. The NDB in August 2023 also provided a US$75 million loan to Telkom for the expansion of its telecommunications infrastructure and network. In addition, the NDB has given South Africa’s state-owned Trans-Caledon Tunnel Authority (TCTA) a R3.2 billion loan to implement Phase Two of the Lesotho Highlands Water Project. The project involves the building of the Polihali Dam and Reservoir, which is a 38km water transfer tunnel that combines roads, bridges, and telecommunications networks. The project on completion will provide South Africa with 71 million litres of water per year; it currently produces 24 million litres of water per year. The South African government is providing full guarantees for the project – as per the NDB’s lending conditions. In July 2023, the bank approved a US$57.6 million loan to the Serra municipality in the southeastern state of Espírito Santo in Brazil, to develop its public transport infrastructure. In the same month, the bank approved a US$60.95 million water sanitation infrastructure project for the Water and Sanitation Company of Paraiba, in the Brazilian state of Paraiba. The bank also approved a US$120 million loan to the municipality of Aparecida de Goiânia in the state of Goiás in Brazil, to improve urban mobility and social infrastructure. In March 2023, the bank approved a US$638.12 million loan to the government of the state of Bihar in India to improve rural roads. In December 2022, the bank approved a US$346.72 million loan to the state of Tamil Nadu in India for the Chennai Metro Rail Limited state entity to upgrade rail infrastructure. In July 2022, the bank provided US$79.05 million in funding to the state of Meghalaya in India for its Meghalaya Ecotourism Development project. In July 2023, the bank approved 2.415 million yuan to China’s Hubei Province for the establishment of the Wuhan Smart Logistics Hub in the Wuhan Municipality. In June 2023, the bank approved US$50 million to the Bank of Huzhou Co. to finance a municipal project in the Zhejiang Province, to develop low-carbon, clean energy, and energy efficiency. Within the project, the NDB facilitates the private sector in China to bridge the funding gap for clean energy projects. The bank in October 2022 approved US$200 million funding for the Liaoning Environmentally Sustainable Urban Development Project in the Liaoning Province of China to finance sustainable urban infrastructure in the Anshan and Lingyuan Municipalities. Conclusion The Russia-Ukraine war – and the threat of sanctions against the bank – is one of the reasons for the bank’s increase in lending costs, slowdown in lending, and failure to secure more funding from capital markets. The entry of six new BRICS members, especially the oil producers, offers an incredible opportunity for the bank to extend its geographical reach, secure new capital and increase its operations. For BRICS members, the bank is likely to be a key institution, to push its strategy of de-dollarisation. In 2023, as part of this new strategy to de-dollarise, the bank will lend in the South African, Brazilian, and Indian currencies – either through currency swaps or debt issuing. Lending in each other’s currencies will not only be a tool to de-risk transactions against exchange fluctuations, but it is also likely to increase the de-dollarisation of the global economy – over the long term. Under the new leadership of former Brazilian President Dilma Rousseff, the bank enters a new era, with a focus on becoming a development bank for developing countries. However, to reach this goalpost, and to challenge Western-dominated global development banks, the NDB will have to expand its geographical footprint, dramatically scale up its lending capacity and transform its governance structure to allow for new members to have a say in decisions. Finally, it is critical that the bank respects the environment, sustainability, the dignity of communities, good governance, and human rights in its development projects, footprint, and partnering. References Africanews. 2023. BRICS bank can help African countries tackle urgent challenges. [Online] Available at: https://www.africanews.com/2023/08/24/brics-bank-can-help-african-countries-tackle-urgent-challenges// [accessed: 21 September 2023] Bloomberg. 2023a. New BRICS currency must replace dollar, says Brazil’s Lula. [Online] Available at: https://www.news24.com/fin24/markets/new-brics-currency-must-replace-dollar-says-brazils-lula-20230413 [accessed: 21 September 2023] Bloomberg. 2023b. BRICS bank aims to increase local currency borrowing to 30%. [Online] Available at: https://www.news24.com/fin24/economy/brics-bank-aims-to-increase-local-currency-borrowing-to-30-20230823 [accessed: 21 September 2023] Bodea, C. 2023. The Fed may have saved the economy by hiking interest rates for the 18 months – and may have guaranteed crisis for emerging markets. [Online] Available at: https://fortune.com/2023/08/05/fed-interest-rate-hikes-save-economy-financial-crisis-emerging-markets/ [accessed: 21 September 2023] Bond, P. 2001. Against Global Apartheid: South Africa Meets the World Bank, IMF and International Finance. Zed Books, London and New York: UCT Press BRICS. 2013. BRICS and Africa: Partnership for Development, Integration and Industrialisation, eThekwini Declaration, Fifth BRICS Summit–Durban. [Online] Available at: http://www.brics.utoronto.ca/docs/130327-statement.html#:~:text=The%20Fifth%20BRICS%20Summit%20concluded,the%20United%20Nations%20(UN) [accessed: 21 September 2023] Chandrasekhar, C.P. 2014. Banking With a Difference, Economic & Political Weekly, 49 (32): 10-12 Green, R. & Kalomeris, E. 2015. Advice for the BRICS Summit: Designing the New Development Bank. [Online] Available at: https://www.bakerinstitute.org/research/designing-new-brics-bank [accessed: 21 September 2023] Griffith-Jones, S. 2015. Financing Global Development: The BRICS New Development Bank, German Development Institute, Briefing Paper 13. 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[Online] Available at: https://www.dailymaverick.co.za/article/2023-08-21-brics-bank-throws-weight-behind-use-of-local-currencies-for-trade-and-financing/ [accessed: 21 September 2023] Malpass, D. 2023. Remarks by World President, Breaking the Impasse on Global Debt Restructurings Conference. [Online] Available at: https://www.worldbank.org/en/news/speech/2023/04/26/malpass-president-breaking-impasse-global-debt-restructurings-conference [accessed: 21 September 2023] Musacchio, A. & Lazzarini, S.G. 2014. Reinventing State Capitalism: Leviathan in Business, Brazil and Beyond. Cambridge: Harvard University Press. National Treasury. 2014. Sixth BRICS Summit – Fortaleza Declaration. [Online] Available at: https://www.treasury.gov.za/brics/News/Sixth%20BRICS%20Summit%20Fortaleza%20Declaration.pd [accessed: 21 September 2023] New Development Bank (NDB). 2021. NDB admits Bangladesh as new member. [Online] Available at: https://www.ndb.int/news/ndb-admits-bangladesh-as-new-member-development-bank-established-by-brics-begins-membership-expansion/ [accessed: 21 September 2023] Norton, B. 2023. BRICS New Development Bank de-dollarising, adding Argentina, Saudi Arabia, Zimbabwe as members. [Online] Available at: https://geopoliticaleconomy.com/2023/06/06/brics-new-development-bank-dollar-adding-members/ [accessed: 21 September 2023] Savage, R. 2023. No new BRICS bank members to be announced at summit: CFO. [Online] Available at: https://www.reuters.com/business/finance/no-new-brics-bank-members-be-announced-summit-cfo-2023-08-23/ [accessed: 21 September 2023] Savage, R. & Goh, B. 2023. BRICS bank should raise local currency use as Russia sanctions bite, says Godongwana. [Online] Available at: https://www.businesslive.co.za/bd/national/2023-08-10-brics-bank-should-raise-local-currency-use-as-russia-sanctions-bite-says-godongwana/ [accessed: 21 September 2023] Sguazzin, A. 2023. China, Russia and their BRICS allies have a ‘medium to long term ambition’ to create a dollar rival as a currency, official says. [Online] Available at: https://fortune.com/2023/07/05/will-dollar-get-replaced-brics-brazil-russia-india-china-africa-ambition/ [accessed: 21 September 2023] Silk Road Briefing. 2023. BRICS New Development Bank: No Common Currency Yet. [Online] Available at: https://www.silkroadbriefing.com/news/2023/07/06/brics-new-development-bank-no-common-currency-yet/ [accessed: 21 September 2023] Stott, M. 2023. BRICS bank strive to reduce reliance on the dollar Shanghai-based lender’s president says. [Online] Available at: https://www.ft.com/content/1c5c6890-3698-4f5d-8290-91441573338a [accessed: 21 September 2023] TASS. 2023. NDB could be ‘clearing center’ for common BRICS currency – Russian Minister. [Online] Available at: https://tass.com/economy/1625965 [accessed: 21 September 2023] Woods, N. 2006. The Globalizers: the IMF, the World Bank, and their Borrowers. US: Cornell University Press. Xinbo, S. 2021. New Development Bank expands. [Online] Available at: https://news.cgtn.com/news/2021-09-10/New-Development-Bank-expands-membership-and-moves-to-new-building-13rbKEetuU0/index.html [accessed: 21 September 2023] Xinhua. 2023. Interview: BRICS bank to increase membership, finance in local currencies, says president. [Online] Available at: https://english.news.cn/20230825/76830e2a98b54d418b54d010caf98131/c.html [accessed: 21 September 2023] - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - This report has been published by the Inclusive Society Institute The Inclusive Society Institute (ISI) is an autonomous and independent institution that functions independently from any other entity. It is founded for the purpose of supporting and further deepening multi-party democracy. The ISI’s work is motivated by its desire to achieve non-racialism, non-sexism, social justice and cohesion, economic development and equality in South Africa, through a value system that embodies the social and national democratic principles associated with a developmental state. It recognises that a well-functioning democracy requires well-functioning political formations that are suitably equipped and capacitated. It further acknowledges that South Africa is inextricably linked to the ever transforming and interdependent global world, which necessitates international and multilateral cooperation. As such, the ISI also seeks to achieve its ideals at a global level through cooperation with like-minded parties and organs of civil society who share its basic values. In South Africa, ISI’s ideological positioning is aligned with that of the current ruling party and others in broader society with similar ideals. Email: info@inclusivesociety.org.za Phone: +27 (0) 21 201 1589 Web: www.inclusivesociety.org.za

- an Inclusive Society Institute and Daily Maverick collaborative project Hosted by: Daily Maverick Associate editor Ferial Haffajee. Panellists include: Associate Professor, School of Governance at the University of the Witwatersrand Prof William Gumede and Professor of Law, Stellenbosch University Prof Geo Quinot. On Wednesday, 20 September our panel of experts delved into the intricacies of Social Economic Rights as envisioned by our constitution. During this enlightening session, the panel shared their perspectives on the invaluable insights presented by Justice Albie Sachs, a distinguished former judge of the constitutional court.

The recent summits of BRICS and G20 as well as the ongoing UN General Assembly conveyed one clear message: the multilateral system needs to change, and the Global South will have a stronger voice in its reform. Navigating a complex, crisis-ridden and increasingly polarized geopolitical landscape, South Africa champions this push for more inclusive multilateralism. Yet from a progressive perspective: what does it look like? What are South African interests and priorities? And where do we find the necessary allies on the global stage? Following previous conferences and roundtables hosted by the Friedrich Ebert Stiftung (FES) in Johannesburg, together with the Institute for Global Dialogue (IGD) and the Mapungubwe Institute for Strategic Reflection (Mistra), a reflection group was convened on 2 October 2023 at the FES premises in Johannesburg, to ponder these questions. The CEO of the Inclusive Society Institute, Daryl Swanepoel participated in the event. In the first part of the event, Dr Siphamandla Zondi gave an observation and reflection on South African actors´ interests in multilateralism. In the second part, Dr Rolf Mützenich, a long-serving German MP and Chairperson of the SPD Parliamentary Group, considered the possible shared interests with German and European Social Democrats.

A Report by the Global South Perspectives Network Contributing authors from the Inclusive Society Institute: Daryl Swanepoel & Dr Klaus Kotzé

A lunchtime seminar on the economic, social and political developments in South Africa was hosted by Arena Idé on Monday, 25 September 2023, at Arenagruppen in Stockholm, Sweden. Reflecting on the thirty years that have passed since apartheid was abolished and the transition to democracy took place, the CEO of the Inclusive Society Institute, Daryl Swanepoel, shared insights on socio-economic and political developments in South Africa. The ANC still holds government power, albeit with less voter support than before and with coalition politics becoming a feature of the political landscape. South Africa has become a global player. At the same time, the country has major socio-economic challenges. Increased prices and costs for food, fuel and electricity are hitting many in South Africa hard, and unemployment remains stubbornly high. Where is the country heading? South Africa faces major socio-economic challenges, and the political environment is fragile. But the macro-economics of the country remain in relatively good shape and the democratic and judicial system functions well. There is despair, but hope prevails.

The Chief Executive Officer of the Inclusive Society Institute, Daryl Swanepoel, represented the Institute at the New Economic Order Conference that was held in Stockholm, Sweden, on 21 September 2023. The conference was organised by Sweden-based Arena Idé and Germany-based Dezernat Zukunft. The conference focussed on the future of Progressive Fiscal Policy. The organisers gathered some of the world’s leading progressive economists, researchers and opinion leaders, who are focussed on turning the page on the new chapter that the current economic crisis may lead to. Session themes included, amongst others: Time to democratize central banking? Inequalities and the cost-of-living-crisis unravelled Counter inflationary measures Tax policy and public attitudes towards redistribution How to fight inflation in an age of overlapping emergencies

The Vital Role of Participatory Democracy in Building a Just and Inclusive Society By the Inclusive Society Institute in collaboration with the Daily Maverick Participatory democracy acts as a fundamental pillar in our pursuit of a just and inclusive society. As responsible citizens and leaders, it is incumbent upon us to deeply comprehend and uphold the principles that underpin this vision. Justice Albie Sachs, a distinguished former Constitutional Court Judge, offers valuable reflections on a case that exemplifies the importance of Participatory Democracy, the Doctors for Life case. In 2005, Parliament passed four pieces of legislation relating to reproductive healthcare matters. Doctors for Life, a conservative organisation, objected to the passing of this legislation, alleging that the National Council of Provinces (NCOP) had not sufficiently involved the public in the process, in violation of sections 72 and 118 of the Constitution. Section 72 of the Constitution requires the NCOP to facilitate public involvement in legislative processes, while section 118 imposes the same obligation on provincial legislatures. Doctors for Life International, which had conservative views on the Choice on Termination of Pregnancy Act 92 of 1996, challenged the proposed law on the grounds that it had not been subject to sufficient public participation in a novel case that pitted representative democracy against participatory democracy. In this particular case's verdict, the Constitutional Court determined that the NCOP had not fulfilled its constitutional duty to encourage public participation in the process of creating laws. The Court established that the NCOP had neglected to request written input from the public regarding the Bills, had not conducted public hearings on the Bills, and had disregarded public opinions when making decisions about the Bills. The word "participatory" does not appear in the Constitution, but section 1(d) refers to a "multi-party system of democratic government." The meaning of this phrase was central to the judgment, which ultimately found that the NCOP had not met its constitutional obligations to facilitate public participation in the legislative process. The Doctors for Life case was a landmark decision that affirmed the importance of public participation in the law-making process. It also highlighted the tension between representative democracy, in which the people elect representatives to make decisions on their behalf, and participatory democracy, in which the people themselves have a more direct role in decision-making. The Doctors for Life matter served as a poignant reminder of the paramount importance of engaging the public in legislative processes. This landmark decision not only reaffirmed the need for participatory justice in South Africa but also continues to provide valuable insights for our democratic institutions. The case is a reminder that participatory democracy is not just an abstract ideal but a fundamental right enshrined in the South African Constitution. It is a right that must be upheld to build a truly democratic society. Our Constitution, as the foundational document of our democracy, envisions a system that goes beyond periodic elections. It calls for a dynamic democracy that actively engages citizens in decision-making. As Justice Sachs eloquently states, the vision is not akin to "sleeping beauty," where democracy is awakened solely during elections. Instead, it demands ongoing public engagement and the recognition of the diverse voices within our society. Participatory democracy yields several benefits for both governance and society. When people are knowledgeable about the law and have been involved in its formulation, they feel a sense of ownership and belonging. This fosters unity amidst diversity, ensuring that all sections of society have an opportunity to contribute meaningfully. Better outcomes are achieved when legislation reflects the realities and aspirations of those most affected by it. Participatory democracy is also particularly vital for groups traditionally marginalised or underrepresented in formal power structures. The Doctors for Life case highlighted the importance of engaging local healers and recognising their expertise. By involving such outlying groups, we strengthen our democracy by embracing the wisdom and experiences of all citizens. The recognition and inclusion of diverse perspectives lead to fairer outcomes and a stronger sense of social cohesion. The Constitutional Court's decision to strike down the law in question demonstrated the court's commitment to upholding participatory justice. It was not an encroachment on Parliament's authority but a necessary consequence of Parliament's failure to fulfil its promise of public engagement. This judgment affirms that reasonable measures must be taken to ensure genuine public involvement, thus emphasising the Court's role as the guardian of constitutional principles. South Africa stands out as a beacon of participatory democracy, with few precedents worldwide of legislation being struck down due to failures in public engagement. We must recognise this unique position and continue to lead by example. The global trend toward disillusionment with traditional political processes calls for revitalising participatory democracy. Rather than sporadic consultations, continuous public engagement is key to rebuilding trust and empowerment. In conclusion, The Doctors for Life case offers us valuable insights into the true essence of participatory democracy. As a living document, our Constitution demands more than just representative democracy; it envisions an active, engaged citizenry. We must embrace the principles of inclusivity, accountability, and openness. By taking reasonable steps to involve the public, we strengthen our democracy and ensure a fair and just society. Let us seize this.