There’s no mention of privatisation, but it does appear the ANC government, or at least the National Treasury, realises how critical private sector involvement is for any reasonable economic growth.
For all sorts of reasons, including inefficient delivery and the huge financial drain caused by state-owned enterprises (SOEs) over the past decade, the government’s ability to invest in new infrastructure has been strained. Finally, it seems, the Treasury reckons it’s time to develop a better working relationship with business.
“Between 2012 and 2022 public sector capital investment averaged 5.4% of GDP, while private capital investment averaged 10.9%,” the Treasury says in its Budget Review. This is dangerously far below the 30% targeted by the national development plan. To reach this target, public sector investment in infrastructure would need to grow to 10% of GDP by 2030, and that of the private sector to 20%.
The Treasury has a plan it hopes will boost investor confidence. It intends “upscaling the use of public-private partnerships and [creating] new institutional arrangements that will crowd in private funding for public infrastructure”.
During his budget speech, finance minister Enoch Godongwana referred to the introduction of what he called fundamental and far-reaching reforms. “We gazetted the amendments to the PPP [public-private partnerships] regulatory framework for public comments earlier this week. The amendments seek to reduce the procedural complexity of undertaking PPPs, create capacity to support and manage PPPs, formulate clear rules for managing unsolicited bids, and strengthen the governance of fiscal risk.”
There is also a plan to establish an infrastructure finance and implementation support agency to co-ordinate the planning and preparation of large public-private partnerships. Government departments, public entities and municipalities will be able to use the agency to prepare, plan and execute projects. The hope is that the agency will reduce fragmentation and duplication across different spheres of government.
The Budget Review refers to 15 PPP projects at the inception phase at present and an additional 19 projects at the feasibility study phase. Six projects have completed feasibility studies and 10 projects are ready to start the procurement process. This, says the review, demonstrates public sector institutions’ continued interest in the PPP market. “Given the budget constraints, the PPP mechanism offers an alternative option for institutions to tap into private sector financing and expertise.”
The proposed amendments are also expected to encourage greater private sector participation in public sector infrastructure by reducing the procedural complexity in implementing PPPs. “The creation of two pathways for PPPs, one for high-value projects and a simplified version for low-value projects, will incentivise the commencement of smaller PPP projects,” says the Budget Review.
National Treasury director-general Duncan Pieterse tells the FM there were no discussions with business about the enhanced approach to PPPs ahead of the budget, but says the new proposals, gazetted days before the budget, provide an opportunity for business to engage with the Treasury.
The realisation not only that the private sector will have to be involved if there’s to be any hope for reasonable economic growth, but that it will have to be encouraged to be involved, has been generally well received.
Business Leadership South Africa said it is “extremely pleased” with the announcement of what it sees as a fundamental reform of the infrastructure financing and delivery mechanism. “Such reforms are crucial to facilitate public-private partnerships and streamline approval processes,” said the business body. It added that while it is still studying the gazetted proposals, it is heartened by the minister’s stance, including his emphasis on the importance of creating a clearer mechanism for accountability, co-operation and co-ordination.
Political analyst JP Landman welcomed the PPP proposals, describing them as unprecedented in South Africa. “What is planned will take the country into entirely new terrain,” said Landman. For 150 years the state has built the country’s infrastructure and, as a result, enjoyed a monopoly of all those facilities, Landman told the FM. That is about to change. “New rules will have to be devised to deal with this uncharted terrain, most significantly around who carries the risk.”
Unsurprisingly, the DA expressed a more cautious view. DA shadow minister of finance Dion George said his party has noted the minister’s support for PPPs “to rebuild South Africa’s crumbling infrastructure”. But he added: “There is a notable absence of a coherent plan to fast-track this initiative.”
What is planned will take the country into entirely new terrain
— JP Landman
A political commentator told the FM he is encouraged by the plan but believes the biggest challenge for the Treasury is getting buy-in from SOE managers. “They seem to have decided their job [is] to block any incursions from the private sector.”
He said the former Transnet CEO had successfully ensured that no private companies were able to run any of the port and rail operator’s network, despite the appalling deterioration of those facilities with railway lines and ports suffering devastating backlogs. Transnet’s inability to get product to the country’s ports is estimated to have lopped 5% off GDP in 2023.
Eskom may have proved it is possible to overcome even the most daunting of opponents when the circumstances are dire. After several years of pushback, the private sector has finally been able to make significant inroads into Eskom’s former monopoly.
It may also help that the Treasury, regarded as the government’s most efficient and effective department by a long shot, has placed itself at the heart of the proposed new PPP process. It will have oversight of each PPP and any deviation from approved plans will require the Treasury’s approval.
An additional motivation is that, as in the case of Transnet, access to continued government funding will be conditional on allowing third-party operators to participate.
The irony of these dramatic proposals is that they were announced in a budget expected to provide some details of the government’s controversial plans for the launch of the National Health Insurance scheme, which will essentially cripple the country’s private medical facilities. A mere R1.4bn was allocated to the NHI grant for some preliminary work in readying health facilities for the roll-out of the scheme.
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