BUILDING A NATION: State development finance institutions push for bright post-austerity future

There’s always a crisis in Minister of Finance Enoch Godongwana’s professional life. Russia invaded Ukraine after the occasion of his first budget speech, and Israel and the US launched the still escalating war with Iran a couple of days after his latest budget speech – and that war is making everything more messy.

In the weeks leading up to October’s Medium Term Budget Policy Statement, the Development Bank of Southern Africa (DBSA) posted its highest profits yet, up 47% to R7.8-billion.

The Industrial Development Corporation (IDC), meanwhile, sank to a net loss of R4.7-billion from a R329-million profit the year before. To be fair to the IDC, the company did report a R2.3-billion profit, but it was the group that lost R4.7-billion.

A big part of that was Mozal Aluminium, which was placed under care and maintenance in March 2026 – ahead of Eskom’s sudden appetite for smelter deals. In all, it was a final tally of a R2.6-billion loss for its 25% shareholding.

Getting money-wise

IDC funding demand shifted from large expansionary industrial projects toward resilience-enhancing investments (embedded generation, process automation, cost-reduction tech) due to weak domestic demand and negative fixed investment growth.

But the big news heading into results season was that the IDC entered into a formal strategic partnership with the DBSA to co-finance energy security and decarbonisation initiatives across Special Economic Zones (SEZs).

Both institutions are also backing national power grid rollout. The IDC expressed intent to participate in the Credit Guarantee Vehicle for Independent Transmission Projects, complementing National Treasury and the Department of Electricity’s credit guarantee mechanisms for more than 4,000km of new transmission lines.

The DBSA’s Infrastructure Fund and IDC are joint anchors under Infrastructure South Africa frameworks for Strategic Integrated Projects, which have grown by 59% since 2020 to reach R540-billion in portfolio value.

Contextualising South Africa’s failure to incentivise domestic private exploration capital (where SA spent just R2-billion on exploration vs Canada and Australia spending R40-billion each), Godongwana acknowledged his role in allowing local savings to leave the country.

“In some cases I blame myself for having allowed the pensions to take 45% of these savings into other countries,” he explained.

He contrasted this with a recent visit to Russia, where international sanctions forced domestic oligarchs to repatriate capital and build local infrastructure:

“One of the people, business person, says to me... ‘these guys you’re sitting with, the Americans helped us... They sanctioned them. If you see all of these buildings that are taking place here, they have brought the capital back.’ So I’ve allowed capital to go outside and people are not putting that capital into the country.”

Finding stability in unstable places

Municipalities have been a consistent drag on development finance in South Africa, with metros reporting electricity distribution losses ranging between 28% and 40%, driven by ageing assets, lack of master planning and unpaid Eskom debt.

Then there were the effects of logistics failures at Transnet, directly costing National Treasury R32-billion in lost revenue in a single financial year (2023).

But South Africa did successfully achieve a primary budget surplus, bringing national debt-to-GDP on to a stabilising and declining trajectory.

“If you look at microeconomic stability, we have achieved our objective...” Godongwana explained. “Have I achieved fiscal consolidation? There I ticked that box. We’ve achieved fiscal consolidation. That box must be ticked. The key question that’s going to confront us now... is to have growth levels that are bigger than 3%.”

DBSA is rolling solo on its efforts to structure private sector participation and channelling private capital into the rail and port networks. It is also attempting to aggregate bankable municipal water projects and deploy targeted initiatives to support under-resourced municipalities.

When you combine that with the IDC’s critical minerals initiative that looks to kickstart battery metals and rare earth projects, there is a ton of political will and fiscal good intent to keep development finance as a viable funding mechanism for government’s post-austerity ambitions. DM