Institutional Investors
The Asset Owners Forum of South Africa (AOFSA) is a consortium of 15 South African pension funds with combined assets under management of about US$ 150 billion. With 13 funds as core members, AOFSA enable retirement funds to collaboratively increase their awareness and allocations to infrastructure by creating opportunities for co-investments and for local retirement funds to exploit economies of scale by sharing the cost and expertise needed for sufficient due diligence.
The predecessor of the SFF, the Capital Markets Strengthening Facility, supported the founding of AOFSA in 2021, and continued World Bank involvement has helped its members with greater awareness on investing in infrastructure, by screening projects and showcasing best practices of investing in infrastructure.
World Bank work has also aided the South African government in its efforts to improve the legal enabling environment for infrastructure investment, without which the demand side cannot perform its proper role, and the supply side cannot be as robust as needed.
Amendments to Regulation 28 of South Africa’s Pension Fund Act, which took effect in January 2023, outlined the extent to which an important subset of institutional investors – local pension funds – are allowed to invest in infrastructure.
This regulation, designed to prevent concentration risks in specific projects or sectors while still giving fund trustees freedom to make profitable investment decisions, limits infrastructure investments to 45 percent across all asset classes and a 25 percent limit per issuer and entity, aligned with best practices is peer jurisdictions to South Africa. Actual allocations now lie well below these limits. In other words, pension funds are in the position to contribute to domestic infrastructure financing without risking the retirement savings of their members.
In early 2025, the government revised National Treasury Regulation 16 with support of World Bank to smooth the way for the public-private partnership model to provide for more of the country’s infrastructure needs. The new regulation streamlines approval processes for smaller projects and creates new guidelines to fast-track certain projects to completion, among other measures intended to give project financiers confidence in their eventual successful execution.
A recent development policy loan extended to South Africa by the World Bank includes a mixture of measures aimed at bolstering the supply of infrastructure projects needing finance:
- Unlocking investments into transmission, easing access to the grid, and upgrading the performance of municipalities in distribution
- Improving the efficiency of freight services by establishing an independent transport regulator to ensure fair, open access for private operators and unbundling Transnet
- Supporting the use of fiscal measures aimed at protecting people and communities affected by the transition to a low-carbon economy.
After engaging institutional investors and building up the pipeline of investable assets, a final aspect of World Bank work in South African involves aligning the risks of major infrastructure projects with the appetites of the private sector.
Credit Guarantees
To that end, the World Bank, other development banks, and the South African government are now in advanced discussions about a vehicle that would guarantee the risk of state-owned enterprises’ payments in strategic infrastructure projects, in particular investments that would build out the electricity transmission grid. The payment risk at these enterprises has been identified as one of the main bottlenecks to mobilize private finance into Soth Africa’s infrastructure.
The grid remains a chokepoint in South Africa’s ability to increase electricity generation capacity. The country seeks to transition from a majority of coal-based generation capacity to mostly renewable energy capacity. Without major investments in the electricity transmission network South Africa will face negative consequences in its growth potential and job creation.
Together, these reforms could boost short-term GDP growth by 1 percent and 2–3 percent over the medium term, with up to 250,000 jobs created by 2027 and 500,000 by the early 2030s. And all these measures, which should increase economic and political support for infrastructure improvements, should bolster institutional investor willingness to finance them.