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Public-private partnerships can place SA back on a track

They can work, if done correctly.
Finance Minister Tito Mboweni. Image: Bloomberg

Central in government’s economic growth plan is to boost the South African economy, cut our extremely high unemployment rate, and avoid further downgrades by credit-rating agencies. While trying to achieve these goals, however, the country faces constantly rising public debt, minimal GDP growth, inefficient state-owned enterprises and the devastating effects of state capture, corruption and mismanagement of public funds.

So, as we try to predict what our post-Covid-19 future looks like, let’s consider what realistic, tangible growth prospects are available in South Africa, and whether we’re asking the right questions. For example, do we have the right public-private partnerships in place? What role do we expect government to play in reviving our economy? And what role does the private sector have in this revival?

We need debt – but only with returns

The last decade has seen a rapid – and worrying – rise of public debt. When you put this in a global context, South Africa came out of the 2008 global financial crisis with much more debt in the world market than before. We weren’t alone in this, but in the years since, other countries who had also emerged from 2008’s crisis with significant debt, have managed to grow their economies and compensate for this. In contrast, the South African economy has remained largely stagnant for over a decade now, with growing levels of unemployment, all contributing to rampant debt levels.

As we deal with the economic impact of Covid-19, I wouldn’t pretend to argue with Minister Mboweni about attaining more debt in the process – there is no doubt that it is needed. But, as we accrue this additional debt, we also need to be able to trust that government will spend this borrowed money productively, in areas where it would have the broadest sustainable impact, and not be squandered or lost, as has unfortunately happened in the past. This is the challenge we face as a country.

We also need to consider whether South Africa will ever reach the point where our revenue growth will exceed the growth in the debt we accrue. Countries need debt to grow – to a point – and debt actually isn’t the enemy in this case.

But the question to be asked is whether citizens will get a return on the incurred debt, that exceeds what we will have to repay to service the debt. As citizens, do we trust that our money is getting used correctly, in sustainable initiatives that are more likely than not going to generate a return in excess of the cost of the debt? And how can we use our country’s resources more strategically, to enable this growth? Strong public-private sector partnerships and an understanding of government’s role versus the private sector’s role, come to mind.

Public-private partnerships will work, if done right

There is an ongoing, and yet growing, concern about what we as a country need to do to increase foreign investment in South Africa. Despite the economic challenges we face, investors have their different ambits and are willing to take risks with their money, for the right return. So, a key question for us to ask here is – how do we create the right return for foreign investors, to shore up our international revenue?

There is a lot of talk about public-private sector partnerships playing a role in funding government projects and state-owned enterprises like SAA. Without these initiatives, creating trust and investment into the sustainable enterprises generating returns to all stakeholder, South Africa would be forced to print money to continue to support the economy. However, similar to debt, if this money is not deployed in projects that generate returns in excess of the cost of the impact of this economic support strategy, the same economic spiral will continue.

However, if we could trust the execution of the economic growth initiatives, we’d be in a better position to assess the short- and long-term impact of these various economic strategies. This is where the legacy of state capture and corruption comes to the fore, and our subsequent lack of trust. Edelman’s 2020 Trust Barometer puts South Africa as the country that trusts its government least – just 20% of South Africans expressed faith in government, well below the 49% global average.

The reality is that public-private partnerships can work, and government can regain our trust. We’ve seen this recently in the partnership with our biggest banks to implement the Covid-19 state-backed loan scheme in which banks lent money to organisations in need during the pandemic lockdown. So far, all evidence shows that this has been a productive partnership: instead of attempting to implement the scheme themselves, government sought banks’ expertise, acknowledging they were better placed to perform the credit checks, and gave the banks a guarantee to minimise their risk – allowing them to take the reins and do what they do best.

These are the kind of partnerships South Africa desperately needs to instil trust in future government-led projects, and get our growth back on track. By partnering with the appropriate private organisations, government’s role would be to simply encourage the ease of process, make it as easy as possible to execute on the transaction, and provide some of the necessary financial support in equity and state-backed guarantees.

Take our energy crisis as an example. The job creation potential in trying to help the energy supply situation in this country is immense. Do we trust Eskom to develop a nuclear power plant? Certainly not at the moment, given the legacy created in recent years. It would be easier to place trust in a company that has a reputable history in the industry, with a legacy of great management, executing on a project and delivering a return on the investment.

Trust will unlock opportunity

Having this kind of working partnership with government can unlock significant levels of foreign investment. The problem is it is predicated on the idea that government offers this support and enables the company or consortium to run independently. We need open regulations that enable us to operate this way. If we want to create jobs, there is a lot of opportunity in South Africa to do so, but the existing bureaucratic and unnecessary red tape is getting in the way.

I am encouraged when President Ramaphosa and Minister Mboweni say “we’re at a turning point” and that “now is the time to grow a new South Africa”. However, I have to work harder to trust that the government at large can put politics aside and grow the country towards a new future. Can we achieve what we always set out to achieve, or are we going down the same old roads that lead us nowhere?

To ensure this isn’t the case, government needs to let others in, enter the right private-public partnerships to instil trust, achieve returns on investment, and gather momentum.

As American politician Richard Caroll said, “A leader is best when people barely know he exists, when his work is done, his aim fulfilled, they will all say: we did it ourselves”. With that in mind, it’s time for government to take a step back, partner with businesses and people that offer the best shot at success, and enable the private sector to do what we do best for the good of the country.

By Sheldon Friedericksen, chief financial officer at Fedgroup.

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The article makes absolute sense. However, after years of government mismanagement of the economy, especially since 2008 with the global markets crash, people and industries have become punchdrunk and dissalusioned with plan after plan with nothing to show for it. An issue that has contributed most to this battle-fatigue has been B-BBEE – specifically the way it’s been implemented with slogans like White Monopoly Capital, national demographics versus regional demographics, etc. Obviously economic transformation is needed and urgent but court case after court case about the mining charter – once empowered always empowered, DTIs nonsensical and intricate web of contradictory laws with no regard for the cost to small business of this and the mafia in construction as a result of the vaguely detailed 30% local community employment regulation in the BEE framework, have taken a toll among many businesses and otherwise reasonable South Africans.
Added to this is tax payers’ prolonged suffering of watching their hard-earned bucks go up in smoke while basic services deteriorate and more and more fellow citizens of all races get swallowed in the sea of unemployment. Public private partnerships have potential, certainly, but fix the way tax is spent, transform the economy in a far less centrally controlled manner and use all available specialist skills irrespective of race.
Then maybe we can move forward!

This type of partnership already works splendidly for the tenderpreneurs
with good , fat kick backs to the ANC.

Agreed. Nobody asserted that PPPs are necessarily legal or fair or honest.

This is such a cliché. However, government will always be the senior partner in the partnership telling private enterprise who to appoint, who to procure from and what to do to in order to drive their social transformation project which doesn’t have a profit motive. Not a very attractive partnership for any right thinking person.

The first line – They can work, if done correctly – sums it up. This government can’t do anything correctly as, ignoring corruption, they are totally incompetent. If there is a way to screw a PPP up, they’ll find it.

If the cANCer is the majority shareholder then the partnership will fail as they will continually call the shots. If you put money into an enterprise where cANCer is the controlling shareholder or partner, then expect to loose your money.

Expect the taxpayer to get screwed over as well.

Who in his right mind will go into partnership with Anc Gavamunt

If government gets involved, it turns into a sh!tshow always. There is too much politics in the economy and simple business.

Anything that the ANC touches becomes highly political and you end up with a massive wastage, corruption and destruction of growth.

If there is the efficient and effective allocation of capital, tendering based on quality and price, and correct implementation of projects then PPP’s could work. But the moment this is messed with, through corruption, BEE or both, you get the opposite.

The best structural reform SA could undertake right now is move away from BEE or ring fence strategic infrastructure projects from the ravages of BEE and corruption.

There is sufficient leadership in SA not to have to import Cubans or allow complete transparency on every Rand spent to help prevent wastage or corruption. Just do it the right way. The alternate path is a continued de-industrialization of SA and increased poverty.

…Ethiopian Airlines offer of resuscitating SAA has gone cold. The offer was a partnership

Another example of the ANC fear of having an “other” African success story that is not of their making

Personally, I think Addis Ababa sighed sense of relief

RW Johnson:-
“One can’t help feeling that one reason why the ANC won’t want Ethiopian Airways to take over SAA is precisely the symbolism of South Africa falling behind what was a backward country not long ago”

The mention of the loan scheme, which has been a huge failure, due to the banks simply applying the same criteria they always do, and only lending out a fraction of what was intended, finally killed off this bit of fantasy for me.

A partnership is a mutually beneficial agreement where the parties respect each other in an environment of law and order and work together for the benefit of the organisation.

When you enter into a business venture with an untrustworthy partner, a proven criminal and deplorable opportunist who has all the leverage in the form of the legislature on his side, while you have non, then your contribution to the venture cannot be described as a partnership. Under such circumstances, your contribution is a donation, a gift. Your partner has shown his intentions with BEE laws, cadre-deployment, the Mining Charter and the redistributive tax regime, and yet he wants you to trust him with more investments? You don’t want a morally bankrupt socialist as your business partner. I would rather keep a Nile crocodile as a pet.

Public private partnerships have a mixed record. The reason for these is that the final commercial agreements are confidential and not open to public scrutiny.

The reason for this is not to protect sensitive commercial information, but to prevent the public from learning about portions of the agreement that are not in the public’s interest and that can include the entire project.

So, when the details are kept from the public then you can bet your entire savings that there’s something rotten in there. You can save some time and money by arresting all the signatories on principle and stopping the project.

In the past many PPPs contained clauses that exploited the public, to the benefit of the contractor and the government. In some cases, there was no benefit to the public at all. This is the only reason for secrecy, nothing else.

Some historical cases for you:

Overseas, PPP to build a toll road and tunnel. Completed. Commercial agreement included that the local government will pay any shortfall in annual revenues if patronage is below a certain number of car trips per year. The car trips forecast was heavily inflated, up to 4 times the actual likely patronage. In addition, the local government had to divert local roads into the toll system to force motorists to use the toll road. All of this came out only after the project was completed and the local government had to page huge amounts to the contractor.

One more, local one this time. In Gauteng, PPP with metro and telecoms company (name does NOT start with M,V,C, or T) to build a network in the city. Total cost R20B rands over the period. Found to have NO benefit to residents. Had to be stopped in court.

One more example: The Lesotho highlands water project. Read the report on corruption – it will make you cry. Another one is the SANRAL project in Gauteng. Probably not corrupt but doubtful if it is in the interest of the public. From the commercial side, recall the corruption around the 2010 staduims tender rigging. Let’s leave it there.

The upside of PPPs in South Africa is that it could kill off corruption but if and only if it is open to public scrutiny and monitoring. No confidentiality anywhere to be allowed. Should keep the commercial partners and the government honest. It would also prevent vanity and political projects from ever taking off.

I’ll take the ANC seriously when I see their corrupt MPs in prison.

I don’t mean “heads of department” and the administrators that the Hawks are arresting now.

I mean the actual corrupt ANC MPs. No presidential pardons. No medical parole. Just jail time for the corrupt thieves who steal from South Africa and keep the poor poor.

Wouldn’t share a virus with the anc or eff marxist thugs!

End of comments.

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