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Monica_55905 May 27

Rebuilding the economy: the role of PPPs

Rebuilding the economy: the role of PPPs image
Public Private Partnerships (PPPs) are an immediate and accessible solution for economic reform and job creation in South Africa, write Kelley Starke Dow and David Jones.
In the midst of a pandemic, it’s natural to focus on short-term measures that bring the speediest solutions to those most in need.  However, while we work on immediate relief, we must not let this crisis go to waste and should take steps to recuperate the health of our economy for the long term.  In SA we must use this moment to rebuild our economy by adopting more Public Private Partnerships (PPPs) - a model that is capable of building an inclusive economy in the near future thus protecting the marginalised by creating jobs across the country.  
 
We need to capitalise on the goodwill flowing from the clear and strong leadership displayed by President Cyril Ramaphosa, Dr Zweli Mkhize and the rest of their cabinet colleagues to take bold and decisive steps to reinvigorate our economy.  Business, the government, labour and the community have never appeared so aligned and so committed to solutions.  We need to translate that goodwill into an economic turnaround. It’s the first time in our generation that the entire world faces a similar threat, and each country gets to define the parameters within which it responds. President Ramaphosa has spoken of a “new economy in a new global reality”, and PPPs should form a bigger part of this economy.
 
Before Covid-19 forced us into a State of Disaster, our economy was already in dire straits. The ramifications of ratings downgrades, stagnant economic growth and high unemployment, and now Covid-19 have many economists predicting a contraction of GDP by 5-7%, with unemployment nearing the 50% level.  At a time when the government’s budgets are both constrained and being reprioritised to fight Covid-19, a PPP infrastructure programme, which is financed by the private sector, can still deliver affordable and quality essential services such as hospitals, roads, rail, border posts, water and sanitation, schools, universities, student accommodation, and energy solutions critical to the wellbeing of most citizens.  PPPs are flexible and offer the government the opportunity to provide long term employment in large numbers with stable, predictable wages, which is likely to be an attractive option for unions too. A PPP infrastructure programme, through specific PPP projects, will create long term and sustainable employment in the communities within which they are located, provide significant opportunities for the transfer of skills, and therefore assist in the fight against poverty.  Through predictable income streams PPPs benefit the South African Revenue Service. These offer glimmers of economic hope and provide the opportunity for the government and the private sector to work together.
 
The partnership between the Department of Correctional Services and the private sector operator to finance, build and maintain the 3,024 bed Kutama-Sinthumule Correctional Centre in Makhado, Limpopo, is an example of an exemplary partnership, which is so integral to PPPs. Not only did the facility employ and train hundreds of local residents during the construction phase, but to date employs more than 650 people, a large percentage being women. In addition, more than 20 small businesses have been created in the local community to supply the prison with high-value goods and services.  It is indeed a catalyst in terms of social upliftment.  Every month the prison commits vast amounts of time, money, home-grown vegetables, handmade school desks, and chairs for early childhood development centres, schools, old age homes, hospices and centres taking care of the disabled.  This is just one project, imagine what can be achieved with a vision for a focused, nationwide rollout of modern hospitals and a new era of schools, and other large-scale PPP projects.
 
According to the 2019 Budget Review, of the R3 trillion invested in infrastructure since 1998, R209.4 billion was invested by the private sector on renewable energy and just R90.95 billion was invested in PPPs.  The number of new PPP transactions declined from an estimated R10.7 billion in 2011/12 to R4.8 billion in 2017/18, mainly as a result of inordinate delays and cancelled projects across various sectors including health and security.  These statistics reveal that, despite South Africa’s track record of successful PPP implementation with 34 projects completed since 1998, the private sector is not being fully utilised to assist the government.
 
The PPP legislative framework and Public Finance Management Act has been in place for many years, and the policy framework is modern and flexible. We have a PPP unit within National Treasury, the Government Technical Advisory Centre (GTAC), with highly skilled staff ably led by Chief Director Tumi Moleke . We also have a modern lending and institutional market, banking system and skilled leadership in a robust Reserve Bank. These are crucial ingredients in the PPP ecosystem. PPP legal skills abound within the country. The private sector is already attuned to PPPs and responds with speed because they already possess the requisite skills and knowledge. “The timing is perfect to mobilise the utilisation of the PPP model and it is now more paramount than ever before to deliver economic growth for the public interest,” says Mr Moleke.
 
As President Ramaphosa made clear last week, our economic strategy will require “a new social compact among all role players – business, labour, community and government – to restructure the economy and achieve inclusive growth”. This cooperation is expected to accelerate structural reforms to the economy, the urgency of which was also emphasised by Finance Minister Tito Mboweni.  PPPs are an ideal economic shot in the arm to ensure that we make that compact tangible - and lasting.
 
Kensani Capital is a South African empowerment company specialising in the PPP sector for the development, financing and operatingof large scale infrastructure projects for the long term.  Over the past two decades, Kensani has partnered with RMB Infrastructure Finance, a leading provider of infrastructure and project finance across sub-Saharan Africa, in PPP programmes covering hospitals, roads, correctional services and renewable energy.  Successful projects include the 3,024 bed Kutama-Sinthumule Correctional Centre and 237MW of solar PV through various rounds of the Renewable Energy Independent Power Producers Programme.  Having been involved in the sector for over two decades, we are ardent believers in PPP projects as an agent and catalyst for economic growth and we have seen the benefits of private capital partnering with the government.  
 


Kelley Starke Dow  is CEO of Kensani Capital
David Jones is an Infrastructure Finance specialist at Rand Merchant Bank
Azar Jammine of Econometrix contributed to this article