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PPPs are the way forward to economic growth – Nedbank

Opportunities abound – from road, rail and ports, to water and energy – and there’s investor appetite.

Public-private partnerships (PPPs) could play a vital role in re-energising South Africa’s R847 billion infrastructure programme aimed at growing the economy and creating jobs, says Mike Peo, head of infrastructure, energy and telecoms at Nedbank Corporate and Investment Banking.

Peo sees PPPs as key in building and maintaining infrastructure such as roads, ports, dams and power plants.

Working together with government would be in line with the National Development Plan (NDP), which has identified strategic infrastructure projects in South Africa.

With an ailing economy, the South African government has felt the pressure to put some of its planned infrastructure projects on hold. But Peo believes PPPs could be the catalyst to advance the infrastructure build programme. Upgrading and maintaining existing infrastructure could also reap rewards. 

“Infrastructure needs continuous upgrading and maintenance. We have two significant gaps. As urbanisation rises, new infrastructure is needed, from roads and bridges to hospitals and schools. Secondly, we need to spend money on maintaining it. It can easily degrade to a point where it becomes unusable.”

Peo says this is a challenge worldwide, although South Africa has two main critical crisis points – energy and water. He sees the greatest opportunity for PPPs in these two sectors.

South Africa’s very successful Renewable Energy Independent Power Producer Procurement Programme (REIPPPP) could pave the way for procurement developments in a variety of fields. 

Round four of the REIPPPP was immensely popular. It was seven times oversubscribed for the capacity of generation that needed to be procured. The Independent Power Producer (IPP) office has indicated that more than R240 billion has been invested in the renewable energy programme overall.

“PPPs are the single best way to procure a large amount of infrastructure under the NDP. The REIPPPP is a classic and internationally-recognised example of how to go about procuring a lot of infrastructure in an orderly way. The renewable energy programme was a world leader in terms of procurement. We think other pieces of infrastructure could be procured in a similar way.”

Peo said this would also give a welcome boost to the massively depressed construction sector, where some companies have had to sell off businesses to survive. Getting the sector moving again would help to put construction companies back on a solid footing and prevent more retrenchments.

South Africa’s regulations and laws allow the private sector to participate in building, developing and maintaining infrastructure.

Investor appetite 

Despite the tough economic climate, there’s clearly an appetite for investing. The timelines for many of the projects are long. Peo says while there’s both a good policy and regulatory framework in South Africa, a coordinated approach with more direction from the government is needed. 

“We have all the major local and international advisors available to design and develop bankable projects,” said Peo.

But he added that investors needed to have confidence that the projects would proceed, certainty on bidding requirements and assurance that the obligations of all parties involved would be fulfilled. This would mitigate risk and ensure that projects would stand a far better chance of being completed on time and on budget.

Opportunities abound – from road, rail and ports to water and energy. Peo says most of these could be income-generating from a GDP perspective.

“Mining has been hugely depressed, but even in this tough economic climate, rail has not been able to keep up with the demand for coal and iron exports,” he said. There’s a tremendous need to upgrade ports, pipelines, rail and fuel storage. 

South African ports, especially container terminals, are expensive and often inefficient, largely because of backlogs. “Fixing that would have a multiplier effect. When commodities pick up, we will be in a better position to export.” 

Peo has called for deeper and better interaction with government to accelerate plans under the NDP.

“We’ve had major forums with the construction industry, working out how to help government accelerate these plans under the NDP, to get the regulatory pieces in place and build capacity.

“We need to take the plans that are included in the NDP and start to identify which ones should be procured by the private sector, which of them should be PPPs and which should be retained within government control.”

Sharpening up the basic infrastructure could lead to long-term benefits. “It could have a massive impact. The private sector has a good track record. We need to work together to achieve better economic growth and create jobs.”

While the South African economy may be in a fragile state now, it’s essential to plan for the future and realise that the country will not be in the economic doldrums forever. 

“We need the political desire to get the projects ready for procurement. The private sector will continue to finance most of these projects. Even in the current economic conditions, private equity will participate. If they see the principles are right, absolutely they will,” believes Peo.

This article was sponsored by Nedbank Corporate and Investment Banking.

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The best warning to investors with regards to PPP’s comes from Ringo Star: “Everything a government touches turns to c**p”.

You don’t understand. PPPs are active and functioning very well in SA. There are huge projects that are driven by the combination of public officials and private entities. Government officials and private enterprise are involved in many major projects, ranging from the smuggling of rhino horn and cigarettes to the irregular expenditure for the purchasing of coal mines. PPPs are alive and well in SA. It is the only thing that is working well. It is all criminal in nature, but what else would you expect if the president himself is a criminal?

Don’t expect the organised crime organisation called the ANC, to support legitimate businesses.

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