Infrastructure projects are the way to energise our ailing economy
The president’s commitment to vital infrastructure expansion and maintenance is laudable, and private-public partnerships are the way to go
The R400bn infrastructure fund recently announced by President Cyril Ramaphosa offers a welcome boost to public-private partnerships (PPPs) and concessions. A meaningful partnership between the government and the private sector in infrastructure expansion and maintenance will provide a much-needed stimulus to our ailing economy.
I strongly support the government’s renewed commitment to strategically important, large-scale infrastructure initiatives and projects. We should not underestimate the contribution infrastructure projects make to job creation, more efficiency in the economy and greater competitiveness, ultimately ensuring a better life for all South Africans.
However, affordability and value for money for the government and the end-user is critical, and that requires allocating risks to those parties best able to manage them. To ensure efficiency, it is imperative that the government sticks to its mandate and what it is best geared to do, such as provide healthcare, education, social services and public transport, instead of having to manage the construction of the infrastructure to ensure it is delivered on time and within budget.
The private sector should be allocated these risks as it is best placed to manage them and can be penalised for under-performance. In this way, the government gets value for money.
We already have great examples of PPPs and we should build on those — quite literally. The N3 from Johannesburg to Durban; the N4 or Bakwena toll road; the Gautrain; Inkosi Albert Luthuli Central Hospital in KwaZulu-Natal; and the renewable energy independent power producer (IPP) programme offer models worth repeating. They provided value as the government did not need to pay up-front for the costly infrastructure, yet they included the financial rigour and innovative structuring the private sector ensures, thus delivering successful projects.
The government, therefore, has to crowd in the private sector by making these investments commercially attractive, for instance, by shifting the credit risk to the private sector
Since the PPP model was introduced in SA in 1998, 31 projects totaling R65.3bn have been concluded. Despite the success of these PPP projects, the number of new projects has declined in recent years, which is not good for SA. There is no doubt that not just SA, but Africa as a whole needs significant investment in infrastructure. RMB’s eighth edition of Where to Invest in Africa identifies the lack of efficient infrastructure as one of the major challenges to doing business on the continent. According to the World Bank, the lack of infrastructure shaves up to 2.6% off Africa’s average per capita growth rate and places significant strain on human development overall.
The Global Infrastructure Hub estimates that for SA to grow by 2% annually until 2030 it will need to invest a cumulative $100bn in infrastructure. This implies investment growth of 2.5% a year, from the post-financial crisis annual average of just 0.6%.
PPPs require a combination of political will, enabling law, policy and systems, and commercially attractive contracts. But policy uncertainty and restrictive and cumbersome procurement frameworks under the Public Finance Management Act and Municipal Finance Management Act are hindrances. The infrastructure fund should solve some of these bottlenecks through more efficient and transparent procurement frameworks.
A key challenge for the infrastructure fund will be to deliver projects using financing structures that don’t rely on sovereign guarantees or support, given the already constrained national debt situation. The government, therefore, has to crowd in the private sector by making these investments commercially attractive, for instance, by shifting the credit risk to the private sector. There is significant funding available locally and internationally from banks, capital markets, development finance institutions, multilaterals, and donors for social and economic infrastructure that can be unlocked through a programme that promises strong governance, accountability and transparency, underpinned by long-term policy certainty.
Even though SA’s PPP legislative and regulatory framework is robust, it takes too long to deliver projects. The dedicated infrastructure execution team in the presidency is expected to help in this regard. In addition, most successful PPPs have benefited from a champion in the relevant line department.
We seem to be getting most of the ingredients in place to get the PPP pipeline going as it is apparent that the new leadership in the government is willing to partner with the private sector to do so. What’s needed now is for national and provincial government departments to identify and prioritise appropriate, bankable projects so that the much-needed infrastructure projects that enable inclusive economic growth can get underway.
• Formby is Rand Merchant Bank CEO.