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Political will needed to unlock PPP value

Ryan Ravens, CEO, Accelerate Cape Town Ryan Ravens, CEO, Accelerate Cape Town

 

“Government needs to appreciate that there are countless competing investment opportunities around the globe and work harder to create a stable environment that is favourable to investors,” says By Ryan Ravens, CEO, Accelerate Cape Town

 

Public Private Partnerships (PPPs) have been touted as the solution to South Africa’s onerous infrastructure development needs. However, the traditional PPP model has been only minimally successful as the associated administrative burden, which often takes years to complete, is generally considered extremely cumbersome. 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. Added to this is the likelihood that significant investors could be foreign nationals or companies who may need to adhere to BBBEE 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 is nothing short of miraculous.

 

As we enter a new era of government and business collaboration, fuelled by a common desire to redress the recent damage caused to our economy by poor political leadership, much discussion has centred on the need for the private sector to partner with government to jointly develop an inclusive economy. The initial, highly publicised talks between business and government have identified three key priorities, namely 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. All of these will require a solid, collaborative partnership between business, government and labour to successfully demonstrate to the local and global investment community that SA remains a viable and attractive investment opportunity.

 

Relevance of the NDP

 

These initiatives are ultimately intended to assist in implementation of the National Development Plan (NDP), thereby ensuring faster inclusive economic growth, and job creation. The NDP however, much like most of government’s long-term economic growth strategies, was drafted at a time when most of us anticipated GDP growth of between 3–6%. Currently, we are facing the dire prospect of below 1% growth which begs the question as to whether or not the state is able to implement any of the much-needed infrastructures so 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. 

 

Around the boardroom table and behind closed doors, business leaders have consistently discussed and confirmed our commitment to supporting the implementation of the NDP. Countless strategies have been conceived which demonstrate the business case for private investment in public infrastructure, especially at this critical economic juncture characterised by slow growth, high unemployment, civil unrest and social division. 

 

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 that of minimal risk associated with a stable regulatory and political environment.

 

In addition, 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 reduce their drain on the fiscus. In an environment characterised by corruption and nepotism, government’s willingness to take guidance from astute business leaders remains to be seen as such intervention will inevitably lead to a severe tightening of the fiscal belt and considerable actions to dismantle the predominant culture of graft and entrepreneurship within SOEs.

 

Public sector arrogance

 

An alarming trend over the past few months, following governments’ commitment to reducing state expenditure and subsequent budget cuts, has been the relentless requests by government departments and agencies for private sector funding of government-led projects. Rather than fully appreciating what these budget reductions require in terms of increased efficiency and smarter implementation, the tendency has been to arrogantly forge ahead with preconceived projects at the same cost, whilst pressuring business to fund the budgetary shortfall. This is not partnership. This is exploitation and this approach will not find much favour amongst seasoned business leaders.

 

All spheres of government need to take a long, hard look at how they’ve traditionally conducted their affairs 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.

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