Since 1994, the South African government has been faced with an enormous challenge. After inheriting an almost bankrupt state and burdened with an acute skills shortage in the public sector, the government was under pressure to deliver on its mandate of providing a ‘better life for all’.
While a lot of progress has been made in social delivery, there is still a massive backlog. Addressing these backlogs, while maintaining fiscal prudence, requires greater efficiency in the delivery of public services.
So, what can be done to speed this up in a cost effective way? The answer may lie in increasing collaboration between the public and private sectors.
Public-private partnerships (PPPs) are a growing trend internationally as a means to use the strengths of the private sector to revive or build public services and infrastructure. Essentially, PPPs are contracts between the public and private sectors that are geared towards the efficient cost-effective delivery of public projects.
Benefits of PPPs
At its best, PPPs create win-win situations. The private sector benefits from payments from the government and/or user fees for its services and, in exchange, lends its expertise to the partnership and carries a substantial amount of the risks. The public sector enjoys better value for money than it would through traditional procurement, it carries less risk and is able to accelerate service delivery.
PPPs leverage private sector skills, such as budgeting and project management, in social projects. PPPs make the skills in the private sector available to the public sector. Some projects also require a skills transfer from the private to the public sector.
When a PPP is signed, the future cost of the project is finalised, leading to greater budget certainty, and government generally only pays when services are delivered. The tax payer does not therefore pay for a service that is not operational and won’t be affected if the costs spiral over time – that risk is borne by the private entity.
PPPs in South Africa
In keeping with this global trend, the South African government has, since 1999, entered into partnerships with the private sector.
In South Africa, PPPs are not seen as a simple outsourcing of functions nor as a donation by a private party for a public good, but rather as a long-term contract involving a substantial transfer of risk.
Public private partnerships should also not be confused with privatisation. A PPP is not the privatisation of state assets or liabilities. In a PPP, the land belongs to the public entity, not to the private party, and the fixed assets developed in terms of the PPP are thus state property. Privatisation entails the sale or disposal of state property and function.
PPPs are seen to be an important service delivery mechanism, as they can facilitate rapid delivery of public projects. PPPs are also seen to be an important mechanism for advancing black economic empowerment in South Africa, with BEE targets outlined in a private party’s bid for a contract with the state. In each PPP project, there is a BEE scorecard with targets for equity, management and employment, subcontracting and local socio-economic impact.
The roll-out of PPPs in South Africa is not without challenges of its own, such as the capacity constraints in both the public and private sectors and the deep-rooted mistrust between government and business. However, the pros of an appropriate, cost effective and mutually beneficial partnership far outweigh the cons.
In 2007, there were 26 public private partnerships in active implementation in South Africa and this is set to continue into the future.
As Finance Minister Trevor Manuel says, “although PPPs are but one avenue for procuring capital projects, the process followed is characterised by diligent planning and transparent bidding – features that should be encouraged for all procurement methods. Moreover, the pressing service delivery challenges across all spheres of government suggest that PPPs could play an even greater role in South Africa”.
Examples of South African PPPs
According to the National Treasury’s PPP Unit, successfully implemented PPPs in South Africa include:
Inkosi Albert Luthuli Hospital
This is one of the few paperless hospitals in the world. The private party is responsible for the provision and regular upgrading of state-of-the-art medical equipment, facility management and IT systems. The integrated IT system allows for the diagnosis and treatment of patients from anywhere in the hospital: all patient information is available electronically to all medical staff at any time.
Free State social grants
This project allows pensions and other social grants to be provided to the rural poor using state of the art wireless technologies. The distribution method, which uses the electronic fingerprint recognition system, has created greater efficiencies and resulted in a massive reduction in fraud. Emergency healthcare is also provided to elderly pensioners.
Gautrain Rapid Rail Link
With a value of R25 billion, Gautrain is the largest infrastructure project in Africa delivered through a PPP. It has transferred significant construction, operational and financial risk to the private sector. Gautrain has shown that there can be a successful mix of public and private capital to achieve a strategic public infrastructure goal.
Ian Macdonald BBus Sci, is the Online Editor at SA Good News.