BUILD, CONNECT AND DO
FRANCOIS FOUCHE: A time and place for public-private partnerships
Don’t underestimate the power of the public-private partnership. The right infrastructure projects, with the right people, could be just the shot in the arm that Africa needs
I am convinced that the age-old economic and political debates weighing up the private sector against the public sector will continue for as long as humans exist. There will be good and bad arguments for when a government should take control; there will be good and bad cases made for unleashing the power of the free market.
I am just as convinced that there is tremendous benefit to be had from combining these two sectors — especially in Africa.
I recently hosted a panel discussion at the Gordon Institute of Business Science (Gibs) to explore the status and potential of public-private partnerships (PPPs) for infrastructure projects on the continent. Siyanda Mflathelwa, Rand Merchant Bank’s sector head of PPPs and concessions: infrastructure finance, could not have captured the wisdom of this model any better.
“First, it has to be applied to the right type of project,” she explained. “PPPs are cumbersome and complex to set up. You need significant government involvement, bankers, lawyers and more to structure a bankable PPP. So, to be worthwhile, it needs to apply to large projects with long time horizons.”
However, she said, once they are established, “PPPs stand the test of time”.
“These structures have a way of crowding in both the private sector and the public sector. Certainly as bankers, a good PPP gives us confidence to put large sums of money behind the likes of an 18-year commitment. The deals are also incredibly detailed. They enable all parties to be held accountable. That even applies decades after the original individuals have moved on.”
It just so happens that these are precisely the sorts of infrastructure projects that South Africa and the rest of the continent need. South Africa’s infrastructure spending shortfall is in the trillions of rand. The gap is growing too. Infrastructure investment fell from 20.3% of GDP in 2015 to just 17.9% in 2019. The National Development Plan targets 30%.
Across the continent, the African Development Bank reckons this spending deficit is more than $100bn.
While people often focus on the jobs created by a construction project itself, we know the real benefit accrues over a much longer term; the overall economic effect of infrastructure has a larger impact on employment than the short-term jobs needed to get that infrastructure built.
The PPP certainly sounds like a good solution. However, the proof of the pudding is in the tasting. Are PPPs the sorts of things that sound great on paper but end up like so many other major projects? Over-budget, over-schedule and under-spec, in other words?
Not if they’re done right.
We won the tender in 2016 and it was formally awarded to us in 2019. We have now basically rebuilt that facilityFrancois Diedrechsen
A lesson from Zimbabwe
The PPP behind the $300m redevelopment of the Beitbridge border post is a case in point. Some years ago you probably heard horror tales of trucks held up there for days, if they were lucky; weeks, if they were not. The average wait before the PPP was 12 days. It is now three hours.
Francois Diedrechsen, CEO of Zimborders, the consortium that won the tender for this project, joined my panel to explain.
“Discussions began with the Robert Mugabe government in 2012,” he said. “Eventually we won the tender in 2016 and it was formally awarded to us in 2019. We have now basically rebuilt that facility.”
With major projects, we tend to be happy just getting the basics done. But this time, Diedrechsen can point to major wins. “We leapfrogged the systems, like what happened when parts of Africa went from very little in the way of traditional phone lines directly into mobile telephony. We took a highly manual process and made it highly electronic.
“We also built things like a water reservoir and a local fire station. Those were important to get buy-in from the local community. And we’re still there. To this day we have 285 people on site operating the place. There are still functions that legislation requires government to run. So we operate together.”
I’m willing to bet that most people would have rolled their eyes at attempts to fix a Zimbabwean border post. Indeed, with the wrong set-up this could have been just another fraught endeavour — one that would be costly, time-consuming and result in modest improvements for an astronomical price tag. But it wasn’t.
For the right types of projects, with the right people, the PPP is a vehicle that is set to unleash a great deal of economic benefit on the continent in the years to come.
* The Centre for African Management & Markets at Gibs conducts academic and practitioner research and provides strategic insight on African markets. Fouche is an economist and research fellow at the centre
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