Rescue remedy

Treating SA’s infrastructure ills with an increased dose of public-private partnerships may be just the right medicine

Rescue remedy

There was a testy mood at Consulting Engineers South Africa’s (CESA) annual Infrastructure Indaba, held in Durban in March this year. CESA president Olu Soluade opened the first session by calling for government’s enhanced focus on ‘professionalising the state’ to enable the right people with the requisite skills, experience and competencies to be placed in key positions. ‘This will ensure that money is spent in a cost-effective manner for both the social and economic benefit of the people of our country,’ he said.

Then Mohamed Mostafa, an associate professor of the University of KwaZulu-Natal, spoke. ‘Poor infrastructure is a serious challenge to the development of communities and economic progress,’ he said. ‘It changes the lives of communities drastically and contributes to increased poverty.’ Mostafa spoke about an urgent need to eradicate corruption and mismanagement, adding that ‘the interference of politics to critical decision-making related to the built environment must change, as it is not based on engineering. Tenders are run by non-technical individuals – in other words, not engineers – and there is no consideration for quality, functionality, qualifications and technical merits. To address the risk of infrastructure collapsing, we need qualified, competent and professionally registered engineers in important positions across the public space’.

CESA’s Infrastructure Indaba took place just one month after the Investing in Africa Mining Indaba, where the same bottlenecks and challenges were a recurring theme. In his Indaba address, President Cyril Ramaphosa labelled logistics as ‘a huge problem for the mining industry’.

By way of example, he said that ‘in 2022, coal exports through the Richards Bay coal terminal dropped to about 50 million tons, the worst performance since 1993. It is estimated that infrastructure inefficiencies have resulted in a 15% decline in mineral sales’.

Ramaphosa welcomed the partnership announced in December 2022 between the Minerals Council South Africa (MCSA) and Transnet to stabilise and restore the operational performance of SA’s rail lines and ports. What he didn’t say – and he didn’t need to – was that the agreement had come about after a confidential letter from MCSA president Nolitha Fakude to Transnet chairperson Popo Molefe was leaked to the media. In that letter, according to News24, Fakude had described a ‘critical need for urgent change’.

In late March, Ramaphosa again highlighted the crisis – and the dysfunction in freight rail in particular – when he announced that he had ‘directed Transnet to implement reforms swiftly and completely to turn around the crisis in South Africa’s logistics system’.

Does the answer to these public-sector problems lie – as the CESA Indaba speakers seemed to suggest – in the private sector? Are public-private partnerships (PPPs, or P3) the solution, and should private companies not only finance infrastructure projects but run them, too?

Senzo Mchunu, Minister of Water and Sanitation, thinks so. In April he hailed the success of the Vaal Gamagara Water Supply Scheme, a R1.7 billion public-private partnership between the Mining Leadership Forum and the Department of Water and Sanitation that saw the upgrading of 75 km of steel pipeline to benefit water users (including mines, municipalities, farms and approximately 6 000 households).

‘Public-private partnerships are critical everywhere,’ he said. ‘With this one here in the Northern Cape we have demonstrated that we can build trust with private institutions for the benefit of our people. Let us use this trust and make this completed project to thrive for the advancement of service delivery. The water sector needs more of these partnerships to ensure that water is brought to the people’s homes, thus changing their lives for the better.’

Whitey Basson thinks so, too. In a recent Financial Mail interview, the retired Shoprite CEO claimed that he had offered his help to the government to fix any department that needs it. ‘I don’t want to work, but will try to sort out an area for them, without pay,’ he said. ‘I don’t want money.’

Getting a 77-year-old retired retail heavyweight to fix the public sector’s problems for free might sound like a crazy idea … but in the same article, former JSE CEO Nicky Newton-King noted that there’s merit to the idea.

‘Business has lots of experience in clarifying strategy and driving execution, and a shared desire to see our country succeed,’ she said. ‘Bringing in seasoned businesspeople who have no political ambitions would help accelerate so many of the critical programmes that need to be delivered if we want growth.’

However, public-private partnerships are not a new idea, and the truth is they don’t always work. A review of nine projects launched between 2000 and 2014 in the EU found that seven had run late and over budget. Meanwhile in the US, the I-69 interstate highway project in southern Indiana (two years late, 51% over budget) has become the case study for public-private partnership failure. As the Harvard Business Review (HBR) laments, ‘these highly publicised travails not only make P3 projects a public nuisance (or more), they create big political hurdles to overcome the next time a much-needed infrastructure project requires outside funding’. And, as the HBR notes, an intense focus on meeting project milestones takes critical attention away from monitoring the health of the working relationships among the public and private entities. ‘The partnership is extremely important,’ a project adviser to a US-based project told the publication. ‘A lot fall short in that people fall into familiar behaviours quickly. They’re like people who get married after two dates; they don’t have ways of working things out together.’

Nevertheless, in SA, PPPs hold the promise of filling the gap between what government knows it needs to do and what it can do.

A 2021 report by Intellidex, commissioned by Business Leadership SA (BLSA), shows that infrastructure investment in SA fell from 20.3% of GDP in 2015 to 17.9% in 2019 – far below the NDP’s (2013) target of 30% of GDP. What’s more, public sector spending on infrastructure declined from 7.3% of GDP to 5.4% over the same period, while private sector investment averaged 12.7% of GDP.

However, as BLSA CEO Busi Mavuso points out, ‘there is great potential in partnerships between government and business to fill capacity constraints and mobilise funding to support infrastructure investment. There is also much that can be done to open opportunities for the private sector to invest directly in infrastructure, such as energy reform and the availability of spectrum for greater broadband roll-out. The private sector has always been the largest investor in infrastructure, and it will continue to invest the most’.

Pundy Pillay, a professor and the Wits School of Governance’s most senior economist, outlines the benefits of having private enterprise step in to assist – or even take over from – government in running certain infrastructure projects. ‘Infrastructure is a “public good”,’ he says. ‘Ideally it should be provided by government in the most efficient way possible. Public goods such as roads, power, water, harbours, etcetera, enable economic activity by the private business sector.

‘In South Africa, the private sector is becoming increasingly involved because the public sector has shown itself in recent times to be corrupt, inefficient and generally incapable in providing new infrastructure as well as repairing and maintaining existing infrastructure. This pushes up costs because government has to pay for this. In a scenario of low- or no growth, this has serious, negative impacts on the ability of the state to provide other public goods such as basic education and primary healthcare.’

And while PPP projects tend to come with higher costs, Pillay argues that the advantage of these projects is – as he puts it – ‘the greater efficiency that the private sector hopefully brings’. He adds, however, that ‘it needs to be borne in mind that the private sector is not always and everywhere as efficient as is generally claimed’.

And therein lies the greatest obstacle to success in PPPs. They are, as the HBR emphasises with its shotgun marriage analogy, partnerships – and partnerships must be built on mutual respect.

‘The main obstacle is the lack of trust,’ says Pillay. ‘The private business sector in South Africa is often arrogant. “We” – as in business – “are efficient; and government is inefficient, corrupt and all things negative.” Government, on the other hand, needs to see the benefits of working with the private sector to ensure infrastructure development, given its own levels of inefficiency and ineffectiveness.’

By Mark van Dijk
Image: Ferdi Dick