XHANTI PAYI AND NINO MANUS: Tough fiscal environment requires public-private collaboration

In times of crisis in the past SA’s social partners have always been able to come together in creative ways. However, we need to find ways of working that are lasting, and that help us build resilience amid the volatility we face — especially as it regards the economic outlook and the country’s ability to invest in key programmes.  

Reports that the National Treasury has informed government departments they will have to fund the 7.5% wage increase for public servants from existing budgets for 2023/24 and the following two years, points to the rising pressure on the public purse. This follows the government agreeing to pay public servants more than double the budgeted 3.5% increase, which resulted in a R35.7bn funding shortfall.  

Government revenues have underperformed due to slow economic growth. As the Treasury has admitted, “financing conditions remain very tough; they haven’t become easier”, with increased political risk and elevated interest rates.  

There is an urgent need for the public and private sectors to work together, including collaborating in new ways to fund infrastructure and assets to support service delivery — especially in local government. 

The IMF has found that in theory uncertainty can reduce the multiplier if the private sector becomes more cautious and does not respond to fiscal stimulus. Conversely, it can increase the fiscal multiplier if public investment shocks improve private agents’ expectations about the economic outlook, and lead to more private spending.

In the volatile times now faced by SA and the world the private sector tends to hold back investment for fear of what lies ahead. This means whatever public spending may occur does not yield the economic results needed to stimulate growth and jobs. This suggests there is a need for collaboration that allows co-investment in a more strategic and managed way to deal with risk considerations.

To deliver sustained outcomes, public and private sector investment could be co-ordinated in a way that is mutually beneficial and reinforcing to achieve the outcomes we all seek.  

Giving her 2021/22 audit briefing to parliament earlier this year the auditor-general flagged concerns about “insufficient investment in infrastructure management and maintenance, including for water-treatment facilities; widespread financial distress; and poor financial planning”. She also reported that 44% of municipalities had unfunded budgets.  

According to the law, an “unfunded” budget means a municipality’s expenditure commitments exceed their credibly available revenue. The Municipal Finance Management Act specifically states that: “An annual budget may only be funded from realistically anticipated revenues to be collected; cash-backed accumulated funds from previous years’ surpluses not committed for other purposes; and borrowed funds, but only for the capital budget referred to in section 17(2).”

As SA faces fiscal constraints, it is inevitable that many local governments that need to provide services such as water will have insufficient funding. This is where the opportunity for public-private collaboration comes into play.  

We have had the opportunity to work with social partners on a public-private collaboration (PPC) model, which aims to accelerate the delivery of large scale infrastructure projects and address social and commercial needs.

The PPC has already been successfully implemented in a large-scale infrastructure development project in SA, and is gaining widespread attention from both the public and private sectors. 

The collaboration model seeks to provide alignment between the public and private sectors in addressing the objectives of the National Development Plan and creating a resilient sector through public-private collaboration. It provides a comprehensive framework for the acceleration of service delivery, as well as an alternative approach towards transformative change. 

While the concept of a PPC and public-private partnerships (PPPs) may have similarities, it is important to distinguish the fundamental differences. PPPs have been only partially successful in the SA context, mainly due to onerous legislative and regulatory requirements, and concern by some social partners that this may be a pathway to the privatisation of services such as water provision.

The PPC model has proved to accelerate the process of implementation, is more flexible and accommodating in an agile environment, has a shared-control model with the government that is more attractive for private sector participation, and enables more transparency and accountability through a special purpose vehicle. 

As we face challenges of service delivery amid ever limited public resources, this is one way social partners can work together, especially when it comes to shared resources, and aim to achieve shared outcomes. This method of mainstreaming collaboration holds great promise as a way to build resilience despite SA’s volatile economic environment.  

• Payi is senior economist, and Manus partner, at PwC SA.