Deeply, profoundly, perilous

Given the past from which we have emerged, government’s incapacity to deliver services was perhaps predictable, maybe even inevitable. The reasons, however, should not be the focus. Crises of capacity loom, or have already dawned, over the delivery of almost every basic service, endangering South Africa’s political and economic prospects. The picture is bleak, but it needn’t be.

For many a daunted government the world over, partnership with the private sector has worked to ease the strain of public demand for energy, water and sanitation, transport, schooling and health care among others. Interestingly, private sector participation in infrastructure development is not new, dating back to seventeenth century canal and road concessions in Europe and the United States. In recent years, however, growth of national economies has lead to unprecedented demand for infrastructure services and funding from traditional sources in many countries often falls short.

While there is no panacea for any government short on both cash and capacity, it is generally recognised that Public Private partnerships (PPPs) can bring the efficiency of business to public service delivery. At the same time, conducting successful partnerships with the private sector is far from easy.

It requires planning, negotiating, implementing and monitoring complex long-term projects that involve a multitude of contractual, political, market and credit risks. What emerges from experience, is that pivotal to the success of these types of projects is sustained political commitment as well as a dedicated regulatory and legal regime.

South Africa has a dedicated PPP regime and there was a time when it appeared that the requisite political will was also present.

In 2003, at the launch of the standardised PPP provisions, Trevor Manuel said that South Africa was serious about making PPPs work. “Deeply, profoundly, serious”, he said. “The challenges we face – building and maintaining roads, rehabilitating our hospitals, streamlining the justice system, banking the unbanked, delivering water, preserving our biodiversity heritage, bringing computers and connectedness to schools and clinics – are deeply serious undertakings”.

He went on to point out that neither party should expect any compromise when it came to accountability: “Those who think that service delivery contracts can be signed off on the basis of casual disregard for procurement procedures and a half-hearted flip through the pages do not belong on the government side of negotiating teams. And those businesses who think that government contracts are a licence to overcharge for shoddy services... should know that they also do not belong in this partnership”.

Almost a decade has now passed and, regrettably, casual disregard for procurement procedures and overcharging for shoddy services have come to characterise many dealings between business and the South African public sector. The term “tenderitis” has been coined to describe this malaise. In the meantime, formal and structured collaborations in the form of PPPs have been relatively few and far between.

The pipeline of projects is short and their journey to market is extremely sluggish, if not at a standstill. Among the reasons, perhaps, is official suspicion of private enterprise and the confusion of PPPs with privatisation. This confusion is unfortunate, because while privatisation is concerned with an existing asset or concern, PPPs involve new projects and therefore create jobs.

Privatisation involves a once-off transfer of assets and ownership, while PPPs do not mean that the government loses control over the relevant infrastructure. “Rather, the government adopts a set of new rules whereby it assumes the role of facilitator and regulator, based on its comparative advantage and ability to apply its leverage to achieve social and political objectives”.

Also, the involvement of lenders – often commercial banks that provide loans to the project company - bring a valuable disciplining influence. As explained by Graham D. Vinter, UK author and expert on project finance, commercial banks lend money for a margin and accordingly have no “upside”. This absence of a share in the profits tends to limit the level of risk a commercial bank is prepared to accept for the level of remuneration it typically receives in a project financing. Any commercial bank, prior to making any loan to a project company would accordingly undertake careful due diligence.

This kind of scrutiny, it is suggested, mitigates the risks of disregard for proper procedure and of shoddy delivery.

There is official recognition that it cannot be business as usual in South Africa. Indeed, President Jacob Zuma was moved recently to call a meeting of the country’s top civil servants. “We must manage government differently to expand access to a better life for all our people, especially the poor”, he said, and warned that unless attitudes in the public service are changed and the work ethic improves, there will not be faster change.

There is something poignant in the idealism of telling the public sector to shape up and deliver, but it is alarming for the ball to be placed entirely in that court.

As Ann Bernstein, director of the Centre for Development and Enterprise, puts it in a recent paper, “Viewed from one angle, the sheer size and diversity of the public service is intimidating. Nearly 1.25 million people work in sectors ranging from social services to the military. But the interests of the almost 18-million people who voted last year and the 49-million men, women and children who depend on service delivery should put the vested interests and collective powers of public servants in perspective”.

Clearly, she says, there should be standards of accountability and a common service ethos across the public service. “But there should be a greater awareness of innovative delivery possibilities”.

We agree entirely. It is necessary to harness, in a robust and comprehensive way, the resources of the private sector in the delivery of services. Failure to do so contributes daily to the dimming of the dream of a better life for all. ▲

Andrew Mitchell

Mitchell is a director at Bell Dewar, a business law firm specialising in transactions and litigation in niche industries that include mining; infrastructure and power, mergers and acquisitions: construction and engineering; and project finance.