PPPs and effective partnering – how government and business should work better 

April 19, 2016
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Public-Private Partnerships have been touted as the solution to South Africa’s onerous infrastructure development needs. However, a typical PPP, as per Treasury Regulation 16 to the Public Finance Management Act, has no less than six distinct phases with approval gates at each stage. Add to this the likelihood that significant investors could be foreign nationals or companies who may need to adhere to B-BBEE requirements and fulfil various obligations such as establishing a local presence. At times, one would be forgiven for thinking that PPPs successfully completed to-date are nothing short of miraculous.

As we enter a new era of government and business collaboration, much discussion has centred on the need for the private sector to partner with government to jointly develop an inclusive economy. The initial talks between business and government have identified three key priorities: to avert an SA credit rating downgrade to junk status; accelerate the growth of SMEs as a catalyst for job creation; and develop investment projects in key sectors.

Relevance of the NDP

These initiatives are ultimately intended to assist in implementation of the National Development Plan (NDP) to ensure faster inclusive economic growth, and job creation. The NDP, however, was drafted when anticipated GDP growth was between 3–6% and we are currently facing prospects of below 1% growth. This begs the question as to whether the State is able to implement any of the infrastructure integral to the success of the NDP. This is where the private sector now needs to step in and demonstrate commitment to actioning our collective responsibility.

Business leaders have consistently confirmed our commitment to supporting the NDP and countless strategies have been conceived which demonstrate the business case for private investment in public infrastructure. The long-term risk nature of PPPs is, however, a concern for investors, especially within the current context of policy uncertainty and political malady. One factor that is non-negotiable when considering long-term investments of this nature, often typified by low rates of return, is stability in the regulatory and political environment.

It is abundantly clear that government requires more than financial support in order to avoid a ratings downgrade. Key to success will be the willingness of government to allow private sector influence over state-owned enterprises (SOEs) in order to improve their efficiency and drain on the fiscus. Government’s willingness to take guidance from astute business leaders remains to be seen as interventions will inevitably lead to a tightening of the fiscal belt and actions to dismantle the culture of graft within SOEs.

Public sector arrogance

An alarming trend following governments’ commitment to reduce state expenditure, has been the requests by government for private sector funding of government-led projects. Rather than fully appreciating that budget cuts require increased efficiency and smarter implementation, the tendency has been to forge ahead with projects at the same cost, whilst pressuring business to fund the budgetary shortfall. This is not partnership and will not find much favour amongst seasoned business leaders.

All spheres of government need to take a long, hard look and urgently re-invent themselves. As partners, we require government to become far more efficient and start appreciating the value of every rand. The corporate sector is not the National Treasury – we do not allocate finances based on sentiment and we require a compelling business case for every investment. The private sector is, and always should be, driven by a profit motive. In order to engage in effective partnerships, government needs to appreciate that there are countless competing investment opportunities around the globe and should immediately start working much harder to create a stable environment favourable to investors.

This full version of this article by Ryan Ravens was published in Cape Business News on 12 April 2016.

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