EDITORIAL: Why private sector is wary of government’s new plan
The private sector has lost confidence in the government’s ability to deliver large projects, so it remains reluctant to partner with the state
It is encouraging, at least, that in the midst of a global pandemic President Cyril Ramaphosa is marshalling an economic recovery plan. The centrepiece will be an infrastructure symposium that he will chair on June 23. The aim is to raise $20.5bn (about R340bn) in investment, mainly to improve SA’s rail, ports, and energy and broadband infrastructure.
There is no disputing that revitalising the inefficient network industries is crucial to restarting SA’s stalled growth. A large infrastructure push, if the projects are delivered on time and on budget, could stimulate the economy.
ANC economics tsar Enoch Godongwana is touting the need for the state "to guide the development process". This is disturbing as it suggests the government believes it should play a greater role in the economy, even though it has proven itself unable to run companies.
But at least Godongwana adds that there’s no need for the state to "own every aspect of it, or even finance" development. If this means that more infrastructure provision will be modelled along the lines of the Independent Power Producer Procurement Programme, then business may yet come to the party. But it is not there yet.
In early May, James Formby, CEO of investment bank RMB, urged the government to mobilise funds for infrastructure in conjunction with the private sector to counter the "icy economic winter" precipitated by the pandemic.
The banks all have dedicated infrastructure financing teams to help, he said. However, on a jarring note, Formby revealed that he didn’t know who actually headed the government’s Infrastructure Fund or what it had been doing since it was launched by Ramaphosa in 2018 with a commitment to raising R100bn over 10 years.
When the FM pressed the fund for a response, it was ignored. The fact is, the government is great at setting up funds and holding summits, but short on accountability and delivery.
Nothing will improve until the state acknowledges that a critical shortage of professional skills and a stifling bureaucracy lie behind its failure to deliver infrastructure. Over the past few years, underspending of infrastructure budgets by at least 25% has become the order of the day.
Public-sector infrastructure expenditure has been adjusted downward every year since 2017, bringing the total reduction since then to R303bn. Had the government just maintained its spending, it would already have delivered the R300bn boost to the economy it is now seeking.
In March, the National Planning Commission released a scathing report on the state’s failure to deliver infrastructure efficiently. A big part of the problem, it said, is that there is a critical shortage of professionals with built-environment skills across all spheres of government.
This results in an inability to take appropriate decisions (when planning, specifying, contracting and procuring infrastructure), to ensure that the work is done properly, or to maintain the infra-structure afterwards.
The upshot is that the private sector has lost confidence in the government’s ability to deliver large projects, so it remains reluctant to partner with the state. This is why less than 2% of public infrastructure in SA is financed by the private sector, compared with 50% in the UK.
"There’s no shortage of money in the private sector to invest in public infrastructure," says the report. "The problem is a dearth of properly prepared and bankable projects, as well as a lack of transparent, efficient and effective processes for bringing projects to the market."
Lacking the expertise and the funds, the state’s dreams of reconstructing the economy through a big infrastructure push will flounder unless it can partner more effectively with the private sector. Business has little choice but to step up for the sake of the economy, so the government had better not drop the ball this time. This really is its last chance to regain SA’s trust.
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