Busisiwe Mavuso | We need capital to build SA’s economy – and fast

POSTED ON: August 26, 2022 IN by Admin
infrastructure infrastructure

By Busisiwe Mavuso

BLSA believes the ISA should be the centre for excellence in respect of developing bankable PPPs.

An immediate rollout of infrastructure developments that address economic inefficiencies is the surest way of making a short-term impact on the dismal unemployment figures released this week. While the dip in the unemployment rate to 33,9% in the second quarter (from 34.5% previously) is welcome, it doesn’t change the magnitude of the crisis.

We need to get as many projects out of the “pipeline” phase and into construction as quickly as possible.

While that would create a significant number of jobs in the short term related to construction and ancillary services, it would also have a positive long-term impact of a growing economy based on efficient services in our energy, water and transport sectors, which are vital to facilitate economic growth.

Government policy has been extremely positive for the country in terms of taking on important structural economic reforms. But it is only once all the critical elements of a particular reform are implemented, including any regulatory amendments that may be needed, that the economy will start feeling the benefits. We need to see things through to the end.

One area government is addressing relates to the country’s track record of underspending on infrastructure, with Finance Minister Enoch Godongwana having confirmed that public sector infrastructure spending would increase 30% to R812.5bn for the next three years. Although this is a welcome shift away from consumption towards investment, this will still fall far short of the National Development Plan’s target of 30% of GDP to be spent on infrastructure development – leaving a funding gap of about R1bn a year which could be filled by private sector investments.

In all areas of reform, each problematic area needs to be tackled in a holistic way, integrating all issues that need to be addressed into a multifaceted solution. There are many areas where it is the detail that is holding up progress on economic reforms. Government has recognised most of these stumbling blocks and Operation Vulindlela in particular is addressing them.

One such area that is holding up private sector investments in public infrastructure projects is the regulatory morass governing private-public partnerships.

The PPP regulations contained in section 16  of the Public Finance Management Act (PFMA) apply a regulatory sledgehammer to any PPP of any size – treating even a small local electricity or wastewater treatment project the same as procuring a nuclear power station. The process is complex and time consuming, which has resulted in few PPPs being undertaken in the last decade.

There are numerous reforms proposed to the legislative processes needed to approve PPPs, mostly to streamline them and house them in one unit, raising expectations that government can unlock the largely moribund PPP framework and reinvigorate it as a central pipeline for private investment into public infrastructure.

Proposals from National Treasury (NT) stem from a 2019 World Bank review of our PPP framework and include exempting projects under R1bn and for those that need regulatory approval, presenting clear timeframes  – at the moment proposed projects get lost in long drawn-out approval processes. Treasury also wants to make it mandatory for a PPP to be implemented after approval, which will compel the public sector to act, and provide guidance for and incentivise unsolicited proposals.

Other recommendations focus on institutional capacity – setting up NT with dedicated resources and transforming the PPP unit into a “centre of excellence”.

Against this, Infrastructure South Africa (ISA) and The Infrastructure Fund (housed in the Development Bank of Southern Africa – DBSA) have been pushing to avoid the PPP framework completely. They argue that the PPP framework creates substantial execution risk and slows the speed to market. In its place, they have been attempting to use traditional procurement structures and/or projects through DBSA using special-purpose vehicles (SPVs) that can be structured with much the same effect as PPPs but without section 16 PFMA requirements or NT oversight. Alongside this, several “get around” interventions inspired by the Renewable Independent Power Producers Procurement Programme (REIPPPP), particularly in water, are being conceived. These are special institutional structures that are brought to life through exceptions to normal PFMA structures.

That brings into focus some tensions as to where the “political champion” for PPPs should be housed and defining the roles of key institutions. There is a danger of the line becoming blurred between a political champion of PPPs and a regulator of them. BLSA believes the ISA should be the centre for excellence in respect of developing bankable PPPs that can then be taken to NT as the regulator. However, the ISA is spearheading government efforts to secure R1tn of private investment and is pushing for control, rather than merely being the promoter.

We need these issues to be resolved quickly. While there has been much progress since the President launched the infrastructure fund in August 2020, these legal and political complexities are holding up investments and job creation. The fund’s target is to invest R100bn in infrastructure over the next decade — spending it anticipates will galvanise 10 times as much money from pension funds, banks and other institutions. While we of course need appropriate oversight of PPPs, we at the same time need capital to start flowing to rebuild our economy – and fast.

*Mavuso is the BLSA CEO. This article first appeared in Fin 24.

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