ANALYSIS

The EU’s ‘Investment Package’ isn’t Aid — It’s guaranteed profit for private capital

Dominic Brown (Amandla) 31 October 2025

Over the past three decades, South Africa’s fixed investment — spending on physical assets such as factories, machinery, and infrastructure — has averaged just 16 percent of GDP. This is roughly half the average for upper-middle-income economies. Chronic underinvestment in the real economy, where most jobs are created, has contributed to the steady decline of South Africa’s manufacturing sector, both as a share of GDP and in terms of employment. Reversing this trend will require a massive increase in fixed investment. The government has recognised this and set an ambitious target to increase total investment from 14 percent to 25 percent of GDP by 2030. Yet, the question remains: how this increase will be achieved — and at what cost.

The Myth of Blended Finance
The government’s strategy relies heavily on blended finance and concessional loans — loans with below-market interest rates. Since 2021, South Africa has significantly increased total borrowing from international finance institutions – such as the World Bank, for instance, as well as so-called development finance institutions, including the French Development Bank and German Development Bank. Most recently, the European Union (EU) pledged a € 11,5 billion “investment package” with South Africa. 75 percent of this (€8,7 billion) is in the form of blended financing – combining public and private sector investments. The deal also comes with commitments from South Africa to provide the EU with critical minerals required to transition to a low-carbon economy. At first glance, blended finance appears to leverage private capital for public benefit. In reality, however, it often disguises public debt as private investment. Infrastructure projects branded as “privately financed” are, in practice, funded largely by taxpayers and service users through government guarantees, subsidies, and cost-reflective tariffs.

De-risking = guaranteed profits
At the heart of the blended finance model lies the concept of “de-risking” private investment. This involves lowering a project’s cost of capital through government-backed guarantees, tax incentives, or regulatory reforms that make projects more “bankable” for investors. The experience of such financing models globally shows that they can end up being more expensive for the public than traditional public borrowing. Complex public–private partnership (PPP) contracts provide numerous opportunities for cost inflation, opaque pricing, and rent-seeking behaviour. Far from reducing the fiscal burden, these arrangements often socialise risk and privatise profit.

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