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How PPPS Fuel Economic Growth in South Africa

How PPPS Fuel Economic Growth in South Africa

Navasha Moodley

Public-Private Partnerships (PPPs) can contribute to economic growth in South Africa. However, they carry a reputation of being "risky business". Is the promise of economic stimulation enough of an incentive to draw the private sector?
Beyond economic recovery—which benefits everyone—PPPs have much to offer investors. Here is how Public-Private Partnerships help the greater good while making business sense.
Building the Case for Public-Private Partnerships (PPP) in SA
Let's cut straight to the chase: good business partnerships are built on rock-solid contracts.
As Philippe Burger1 (Dept. of Economics, University of the Free State) aptly states: "At the heart of the South African PPP structure is the National Treasury's PPP Unit constituted in 2000. This dedicated PPP unit plays a key role, particularly in the creation of PPPs…".
This unit has developed a robust framework for PPP formation, including guidance in developing an ironclad agreement. The unit holds the final authority in approving of PPP agreements.
With that authority comes reassurance. The unit's responsibility is to "judge and approve the ability of an individual department to afford the PPP agreement" (Burger1).
PPP Formation
PPP formation is a rigid, detailed process. It takes 6-24 months to negotiate and sign a PPP agreement, and the agreement period can range from three to thirty years, taking it to conclusion. According to Augustine Arimoro2: "South Africa has maintained a leading position in PPP administration and regulation in sub-Saharan Africa."
The legal and regulatory framework for PPP mandates a comprehensive, strategic business case for the PPP unit to approve. The BRICS 018 update on Good practices on public-private partnership frameworks says:
"The key regulatory features of PPP frameworks in South Africa are:
Regulation 16 requires all PPP deals to obtain Treasury Approval (TA) for:

  • Affordability
  • Value-for-money
  • Appropriate allocation of risk

Applied within set PPP project cycle:

  • Inception
  • Feasibility
  • Procurement
  • PPP agreement management."

For PPPs to contribute to economic growth in South Africa, they must start with protecting the interests of the private sector investors.
PPPs are formed via a concession model that follows through all the way to budgets and the conclusion of the deal.
Everything is written into the agreement, including contingent liabilities. Implementation is centred on the agreement—it governs every aspect of the partnership.
Partnering for Economic Growth in South Africa
In essence, Public-Private Partnerships exist to benefit economic growth in South Africa.
These partnerships leverage expert IP and technology to ensure timely, on-budget service delivery. Reliable infrastructure creates a conducive environment for trade and commerce. Therefore, South Africa becomes a more attractive place for local entrepreneurs and international investment.
Increased efficiency in project fulfilment translates into cost savings which, in turn, enable government funds to be redirected towards socio-economic areas in need.
It is suggested that Return on Investment (ROI) from PPPs might be greater than traditional all-private or all-government project fulfilment.
South Africa's unique B-BBEE requirements within the PPP framework further contribute to the support of the SMME sector. Let us not forget the labour needed to fulfil these projects, creating numerous job opportunities.
PPP Success: Realising Renewable Energy in South Africa
The emergency power procurement programme recently made headlines as Eskom signed agreements to roll out 3 of the 11 successful bids. These agreements will see 150MW of dispatchable (baseload) solar energy added to the Eskom grid.
This form of alternate power generation via PPP is not new. By May 2014, the Renewable Energy Independent Power Producer Procurement Program (REIPPPP) had already awarded 64 projects to the private sector, of which some were live3. In a World Bank Report3, "One investor characterised REIPPPP as 'the most successful public-private partnership in Africa in the last 20 years.'"
Improving the Uptake of PPPs
Fiscal risk is often cited as the cause of low PPP uptake, but capacity is arguably the more prominent limiting factor.
There is a finite number of people within the government who are skilled in dealing with PPPs. For this reason, the number of active PPPs are limited to these individuals' capacity. Knowledge transfer is essential to creating more capacity within the government to support more concurrent projects.
Fortunately (and perhaps ironically), this knowledge transfer is the by-product of more projects, more so between private partners who hold PPP experience as well.
For guidance related to Governance, Risk & Assurance related to Public-Private Partnerships, please get in touch with your local Moore firm.