South Africa’s record of using public-private partnerships (PPPs) to fund infrastructure is unlikely to improve until basic managerial principles are amended.
Failure to resource its project development offices adequately sets the government up to be overcharged for new infrastructure, says Utho Investment Holdings CEO Sheila Galloway. South Africa may compare favourably to its neighbours in infrastructure finance, but she says resources and expertise within the government are sorely lacking.
The Africa Public-Private Partnership Conference in Sandton late last year brought the government, financiers and advisers investors together.
African countries need to invest about $93bn a year on power, water, transport and social infrastructure. But though funding is scarce, alternative means of finance, such as PPPs, are not used as frequently as they could be.
In South Africa, the renewable energy independent power producer programme is a notable example of the successful use of private capital for building public infrastructure. The programme has been celebrated not just within the government, but by financiers and builders too.
But abandoned prison PPPs and stalled hospital projects are recent disappointments that have made investors wary.
A few years ago, construction companies spent millions of rand compiling tenders for the construction of private prisons. But the bids expired and the government abandoned the idea. Policy inconsistency has been a recurring problem.
Ms Galloway says problems with implementation have also hampered success. She cites examples where project officers were appointed to manage large projects single-handedly, without being adequately briefed or supported with resources.
And she says a high turnover of staff with no succession planning has created disjointed management and a lack of continuity. This increases risk, which ultimately drives up prices.
Ms Galloway says project officers have not been shown financial models. And penalties for contract breaches are not imposed because state employees are unable to calculate them. “This kind of environment allows companies to get away with overcharging government.”
However, South Africa is way ahead of its neighbours. The head of power and infrastructure in Standard Bank’s corporate and investment division, Ntlai Mosiah, says numerous funding options exist, but other African countries have not developed a supportive regulatory framework. Without laws and guidelines governing the relationship between governments and the private sector, leveraging private capital is hard.
Most African countries do not know what it takes to set up a PPP. The European Investment Bank’s (EIB’s) head of project finance and guarantees for Africa, the Caribbean and Pacific, Monique Koning, says there are good ideas and intentions in the rest of the continent but governments are not experienced in managing large projects. “Many countries think the process will be easy and that the money will come, but international financial institutions like the EIB are tough to work with.”
They have lots of requirements, she says, including social and environmental guarantees. The EIB can provide assistance, but is selective in its choice of partner. “We are more likely to work with those who can mobilise their own equity. Governments could do a lot more to help develop projects.”
Development Bank of Southern Africa finance division GM Cyprian Marowa says South Africa and the region cannot fulfil all infrastructure requirements with funding from the fiscus. “There is a gap which we need to close by attracting private capital. It’s a difficult task, but it’s the only way.”
Despite uncertainty about the commitment of the South African government to PPPs, the spectacular success of the renewable energy programme has raised confidence. And the government has suggested it could apply a similar model to other energy projects.
Beyond energy, however, that commitment must be demonstrated elsewhere.