Will public-private partnerships finally fly?

In his state of the nation address this month, President Cyril Ramaphosa set a conciliatory tone to rope in private capital in a bid to boost infrastructure spending in SA.

It was a business-like statement. Especially considering that this would rely heavily on public-private partnerships (PPPs), according to the president.

The Budget Review dedicates a whole chapter to what the government plans on doing to get SA’s haphazard PPP regulation and processes more efficient. Whether it goes far enough is another matter.

"I think it goes a long way and there is a continued focus on this," says Renier de Wit, MD of Gaia Fund Managers, an investor in economic infrastructure. "Investors like continuity."

As part of the drive for efficiency, the government aims to create a centre for excellence for PPPs and other "blended projects" with direct oversight by the National Treasury. "It will be a direct interface with private financial institutions for investments in critical government infrastructure programmes," said finance minister Enoch Godongwana.

This raises the question whether there is enough capital available to partake in the government’s ambitious PPP programme.

"SA doesn’t lack capital," says Nolan Wapenaar, co-chief investment officer at Anchor Capital. "The question is whether there are enough investment opportunities."

According to Reserve Bank data for the third quarter of 2021, pension and provident funds had net inflows of R20.4bn. Total assets among private retirement funds reached R2.3-trillion in the third quarter of last year and pension funds administered by the Public Investment Corp totalled R2.16-trillion, according to the latest quarterly bulletin from the Bank. So the money is there.

The changes to regulation 28 of the Pension Funds Act, proposed at the beginning of last year and allowing for a maximum allocation of 40% of retirement fund assets to infrastructure, mean that a hypothetical R1.78-trillion is available. Godongwana said the regulation 28 changes, following wide consultation, will be gazetted next month.

But "the government would need to clarify what is meant by infrastructure", says Jason Lightfoot, portfolio manager at Futuregrowth Asset Management. "Will MTN shares count, for example?" Lightfoot is part of the Association for Savings & Investment SA team that commented on the Treasury’s proposed changes to the regulation.

What does stand out in SA is one programme that delivered world-class results. Born out of necessity as power outages ravaged the nation in 2012, the renewable energy independent power producer procurement programme (REIPPPP) has attracted R209.7bn in funding commitments since, of which R41.8bn came from foreign investors and financiers, according to the government’s independent power producers office. In other words, the bulk of the money for the project came from local funders.

For instance, 25 successful bidders, out of more than 100, were chosen in October to construct 2,600MW of renewable electricity generation plants.

Investments worth R50bn should flow once financial close is reached for these projects, likely in the first quarter of this year.

That said, the programme is running behind schedule, mainly due to bidding rounds being held back for almost two years.

"We’re far behind on the energy side [of private investment]," says De Wit. "We should have been at bidding round 8 or 10 now."

In the meantime, the draft Public Procurement Bill, with its aim to create a single regulatory framework for public procurement (including PPPs), still languishes somewhere in the slow cogs of government decision-making. The draft bill was released for public comment more than a year ago and still needs to go through the National Economic Development & Labour Council for consultation.

The lacklustre uptake of PPPs in SA is illustrated by the fact that, except for the REIPPPP (which is in essence a supply contract with a government entity), only 35 projects worth R91.4bn have been concluded over the past 24 years.

Of these, the upgrade of Gauteng’s highways and subsequent implementation of e-tolls constituted R20bn and the Gautrain rapid rail link R31.8bn. And the jury is still not even in the building on e-tolls.

To make a success of PPPs, as with the REIPPPP, urgent attention needs to be given to an important subject: corruption.

Says Wapenaar: "There’s a sense of realism that needs to be addressed."