Public-private partnerships (PPPs) could assist governments in Africa to close the present annual funding gap of about $50 billion required to bridge the continent’s infrastructure backlog, the recent Railways and Harbours Conference & Exhibition in Johannesburg was told.

Speaking at the conference, Johan Greyling, infrastructure and projects in Africa director of advisory firm KPMG, said the continent was spending only half of that which was required to bridge the infrastructure backlog, at around $45bn a year, when it really should be spending about $95bn per annum.

PPPs may have the potential to solve some of Africa’s considerable infrastructure backlogs, but should not be seen as a silver bullet, he said.

On average, an African country needs to spend about 25% of its gross domestic product on infrastructure, but is currently spending about 15%. With Africa’s population set to double in the next 25 years, the infrastructure problem would continue growing.

Greyling said that Africa’s greatest infrastructure investment challenge was its inability to attract large-scale foreign investment and secure stable and reliable funds, even though the continent had been doing much better in recent years.

He noted that PPPs could make a huge contribution toward meeting these challenges, but added that many African countries still did not have the desired framework to execute such projects successfully. “The fact that a reform in Africa’s regulatory process is only halfway along forms part of this problem,” added Greyling.

South Africa has been one of the most successful countries on the continent at implementing PPPs, completing 50 national and 300 municipal projects in recent years. It has set up a conducive regulatory system to execute such projects, but Greyling warned that a PPP model was not suitable for every project.

He said the reasons the PPP model was not always as successful in other African countries usually related to policy issues, as well as the fact that big government contracts were complex, demanding, time-consuming and prone to abuse by unscrupulous individuals, firms or politicians, unless controlled by disciplined and highly transparent procedures.

However, Greyling added that under the right conditions, PPPs could offer significant benefits to African governments, business and consumers.

Infrastructure and job creation

Getting infrastructure to the desired levels could, in the long run, have a positive impact on the process of job creation via the opportunities that are created by the maintenance of that infrastructure.

In its second “Infrastructure Report Card for South Africa 2011” released early in April, the South African Institution of Civil Engineering (Saice) said infrastructure maintenance could account for many of the much-needed five million jobs that the government has set as a goal over the next 10 years.

The report rated infrastructure development over the past decade in 10 sectors: drinking water systems, sanitation, roads, railways, airports, schools, electricity reticulation, hospitals and clinics.

It rated the sectors as “satisfactory” (C-) for now, marginally up from the “less than satisfactory” (D+) it was awarded by the previous report card compiled in 2006, although it noted that the improvement was off a very low base.

The convenor of the latest report, Sam Amod, said the marginal average improvement could be ascribed to the government’s ongoing investment in infrastructure, and impacted on by the heavy investment in particularly large national assets such as ports, rail, airports and national roads.

This investment, although to be lauded, is not sufficient without a corresponding commitment to maintenance to ensure new and existing infrastructure is sustained, he said.

Amod added that although infrastructure has improved on the whole, much of the basic social infrastructure necessary to the daily lives of citizens is unchanged or deteriorating.

While creating infrastructure generates once-off jobs, maintaining it on an ongoing basis could create jobs for life, and no infrastructure can last without maintenance, as is evident in the deterioration of quality and reliable basic infrastructure serving the population, Saice said.

“Because construction generates more jobs per rand spent than almost any other sector of the economy, this investment appears to satisfy development needs, as well as a driving priority of our developing country – job creation,” it added.

Partnerships and public hospitals

There is a growing discussion about the possible utilisation of PPPs to bridge the enormous gaps between private- and public healthcare spending in the country.

The state of public healthcare infrastructure, along with other structural challenges such as the difficulties in attracting and retaining skills, has led to a decline in public healthcare services.

The National Treasury has set aside some R105bn in the present budget year for national and provincial healthcare spending, but is planning to continue broadening the use of PPPs in this sector, while engaging more with the public sector to improve the country’s hospital system.

According to the head of Treasury’s PPP unit William Dachs, such partnerships could offer two important advantages: a proven ability to deliver and maintain infrastructure on a large scale; and the leverage of private-sector skills and resources in delivering the necessary supporting services.

In his 2009 Budget speech, Minister of Finance Pravin Gordhan identified the Chris Hani Baragwanath Hospital in Gauteng as a flagship PPP project, for which a feasibility study had been completed.

Waste management

A year-long project to assess alternative service delivery mechanisms to divert waste from landfills in the City of Cape Town was concluded at the end of March this year, with a report to the metropolitan council.

It contained recommendations to assess the feasibility of five PPPs: the Athlone Refuse Transfer Station, the Swartklip Refuse Transfer Station, the Kraaifontein Integrated Waste Management Facility, and two future planned facilities to implement large-scale waste minimisation initiatives with the aid of the private sector.

This study was the most comprehensive evaluation of municipal solid waste services in South Africa to date. It followed on the council’s adoption of an Integrated Waste Management Policy in 2006 to align its services with changes in the South African environmental legislation.

The report contains the following:

• Energy recovery from waste, composting, builders’ rubble crushing and large-scale separation of recyclables are all preferred solutions that will be considered at these facilities;

• Processing activities are possibilities that will ultimately be considered at the City’s waste management facilities; and

• By integrating commercial activities with municipal waste services, it will bring the City a step closer to implementing internationally recognised integrated waste management practices to simultaneously reduce the impacts of waste and derive economic benefit.

The City resolved in December last year that its composting plants at the Bellville South Landfill Site and at Radnor be assessed for PPPs, recognising the value of compost production to the local economy. This project has been registered with the National Treasury.

Other projects will follow suit as per a priority schedule that will be drawn up by the Solid Waste Management Department.

The statutory PPP feasibility assessment is expected to take at least 12 months before the first public tender will be offered, assuming that the recommended projects are found to be economically viable and will not expose the City and its ratepayers to undue risk.

Alderman Clive Justus, the City of Cape Town’s Mayoral Committee Member for Utility Services, said: “The City will consider its options in relation to local private sector projects, some of which have already been established and are not part of the envisaged integrated municipal waste management system.

“The Utility Services Directorate is preparing for the PPP process and the implementation of multifunctional projects.

“The City will embrace all opportunities to beneficiate waste and simultaneously initiate additional economic activities,” he added.

What are PPPs?

South African law defines a PPP as a contract between a public sector institution of municipality and a private party. The private party assumes substantial financial, technical and operational risk in the design, financing, building and operation of a project.

There are two types of PPPs. In the first instance, the private party performs an institutional or municipal function; while in the second, the private party acquires the use of state municipal property for its own commercial purposes.

In certain instances, a PPP can be a combination of the two.

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