South Africa: Reviewing the PPP framework
By Fiona Wakelin
To revitalise South Africa’s economy and meet the National Development Plan (NDP) goals of halving unemployment and poverty by 2030, the establishment of a competitive infrastructure base is vital. However, government infrastructure budgets have come under significant pressure over the past few years due to lower economic growth and competing priorities such as funding for higher education and compensation of employees. The private sector can play an important role in partnering with the government to implement infrastructure projects.
The National Development Plan recognises the importance of partnerships between the public and private sectors – in South Africa – in accelerating infrastructure investment to the required levels. It also recognises that greater use of public-private financing will likely result in better planning and improved feasibility studies, resulting in more rigorous assessment and accountability of infrastructure projects. Public-private partnerships (PPPs) can therefore play an even bigger role in the development of infrastructure projects in the country.
The PPP framework has been in existence since mid-2000. To date, 37 PPP projects valued at over R90 billion have been completed. PPPs in operations include projects in the following sectors: health, transport, tourism, water and sanitation, and office accommodation. However, the success of PPPs has also had its own challenges. Over the past few years, PPP deal flow in South Africa has been declining, from an estimated R10.7 billion in 2011/12 to R5.6 billion in 2019/20. South Africa has been unable to maintain the momentum of the early successes of its PPP program where 19 projects closed between 1998-2004. By contrast, only 9 projects closed between 2005-07, and only 6 projects closed from 2008 to 2019.
The decline in PPPs can be attributable to some of the perceptions and criticisms of PPPs in SA, which state that PPPs are cumbersome and that it takes a long time to conclude the PPP cycle and implement projects. The decline is happening at a time when the economy is underperforming and tax revenue is below expectations.
Why was the review necessary?
- The objective of the review is to address concerns, perceptions and criticism raised about PPPs with the hope of increasing PPPs and crowd in private sector funding.
- SA had its first PPP over 20 years ago and since then, the PPP framework has not been reviewed. This review was therefore necessary to ensure that lessons are drawn to increase the implementation of PPPs going forward.
- The country has been experiencing low economic growth for some time. COVID-19 has worsened our economic trajectory. The economic recovery plan announced in October 2020 prioritises infrastructure spending to support the economy in the short term, and longer‐range reforms to boost the potential growth rate. Many of the reforms announced involve pooling resources with the private sector, multilateral development banks and development finance institutions to fund infrastructure investment more effectively. PPPs therefore offer an opportunity to increase government investments and contribute to economic growth.
- The Presidency has reiterated the need to ensure that government partners with the private sector in the implementation of infrastructure projects. The Infrastructure Fund announced by the President offer an opportunity for increased partnership between government and the private sector. The fund provides government support for co-financing of programmes and projects that blend public and private resources. Most of the blended financed projects coming from the IF are expected to be one form of PPP or another.
Progress to date
The National Treasury initiated the review of the PPP framework with three workshops in September and November 2019. Members of the public and private sectors were invited to share their experiences and lessons learnt on PPPs. A number of lessons learnt have since been incorporated into the draft recommendations report. A workshop has been organised to present final recommendations with the hope that they will be validated before they are fully adopted.
The recommendations developed have been clustered into three categories: those that can be implemented in the short term (< 6 months), medium term (between 6 and 12 months) and long term (between 12 and 24 months).
What are some of the recommendations made?
- Integrating PPP policies into the infrastructure delivery management systems.
- Amending regulations and legislation to exempt smaller projects from onerous requirements, taking specific conditions into consideration.
- Centralising and improving the screening and assessment of projects and proposals. Establishing a PPP regulator, and country – and sector-specific benchmarks for cost and efficiency.
- Standardising project preparation requirements for certain smaller projects and contract templates across sectors.
- Building PPP capacity across government institutions including contract management practices.
- Setting out clear timeframes for different project phases to reduce the PPP project planning cycle.
- Building and retaining the skills required in the public sector to improve the planning and management of PPPs.
- Implementing measures that facilitate market consultation to obtain feedback on projects and inform the procurement strategy.
- Simplifying value-for-money assessments and introducing economic valuations of all projects above a certain threshold.
- Streamlining the procurement evaluation process for PPPs to reduce the time it takes to appoint a preferred bidder.
- Installing a system that monitors and evaluates projects to draw lessons for better project planning and implementation.
Most of these recommendations, focused on national and provincial PPPs, also apply to municipalities. In addition, the review of the municipal PPP framework specifically recommended reducing the number of public consultations, increasing the involvement of the Municipal Infrastructure Support Agency and simplifying the unsolicited proposal framework in line with municipal regulations.