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Meet the Team

Public & Private Partnerships for Infrastructure Development in SA A Prerequisite for SA’s Sustainable Growth …. Meet the Team. Reena Govender - Mercantile Bank Limited Reuben Matlala - Development Bank of SA Vivian Khumalo - First Rand Group Limited Yougan Moodley - Nedbank Limited.

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Meet the Team

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  1. Public & Private Partnerships for Infrastructure Development in SAA Prerequisite for SA’s Sustainable Growth …

  2. Meet the Team Reena Govender - Mercantile Bank Limited Reuben Matlala - Development Bank of SA Vivian Khumalo - First Rand Group Limited Yougan Moodley - Nedbank Limited

  3. Research Objective Problem Statement In the past decade(s), SA has been challenged with the provision and maintenance of key infrastructure to meet the needs of its people and to be globally competitive… Research Question Is PPPs’ the solution and pre-requisite for the delivery of such infrastructure to ensure sustainable growth and development in SA?

  4. Outline of Presentation • Introduction • Economic Overview of SA • PPPs’ in SA • PPPs’ in UK • Key Findings • Recommendations

  5. Introduction • Current stats on basic services (Community Survey 2007): • 80% of households in SA use electricity for lighting • 88.6% of the population enjoyed access to piped water • 60% of households in SA have access to flushed toilets • Over burdened and limited transportation network • More than R400bn was budgeted by Government for infrastructure development • To date, a limited amount of this budget has been spent, either through PPPs’ or other procurement methods • Private Sector participation in infrastructure development in SA is not a new concept

  6. Overview of SA Economy • Economic growth rate of 5.1% (2007), YTD 2.1% (first quarter 2008) • Unemployment rate – official (23%) & expanded (40%) • Inflation (CPIX) of 13.00% (Aug 08) • High interest rate environment (Prime lending rate of 15.5%) • Low consumer confidence • SA economy needs to grow by at least 6.0% per annum. SA must make significant investment in infrastructure to achieve a stable and growing economy.

  7. The Need for Infrastructure “For Africa to continue on its anticipated growth trajectory, vital infrastructure and services are needed, and the private sector will need to play an increasing role in the provision of this infrastructure if it is to be delivered at the rate required”. (Engineering News, 30 May 2008).

  8. Research Methodology • SA & UK: • Literature review • Interviews • Research areas covered: • Extent of PPP’s undertaken • Financing models • Regulatory frameworks governing PPPs’ • Private Sector appetite to participate in PPPs’

  9. PPPs’ in SA • Regulatory Environment governed by SA National Treasury • Investment in Infrastructure though PPPs’ began mid 1990’s and gained momentum early 2000’s.

  10. PPPs’ in UK • Regulatory Environment governed by HM Treasury and EU Procurement directives • Investment in Infrastructure through PPPs’ gained momentum in the 1990’s.

  11. PPPs’ in UK cont … • Significant investment in PPP infrastructure over the past 5 years to 2007 • Sectors receiving greatest focus were Health, Education and Defense.

  12. The Costs and Benefits of not Investing in Infrastructure in SA • Costs • Limitations on economic growth • Depletion of existing infrastructure • Reduced access to basic services • Increased unemployment • Political instability • Benefits • Stable and growing economic environment • Stable social environment • Risk management • Promotes efficiency in procurement and ongoing asset operations.

  13. PPPs’ are Not Without Risk • Not providing value for money: • Quality vs. Costs • Not offering operational efficiency • Financially inefficient • Risk • Financial risks not adequately transferred to Private Sector • Projects not completed and delivered on time • Procurement • Lengthy and costly tender processes • Complex and/or inflexible structures

  14. Key Findings • Strong opinion expressed by Banks, Research Institutions and Advisors on the Need for PPPs’ • Positive past experiences, even with lengthy and cumbersome bidding processes • Government & Private Sector are comfortable with the current regulatory frameworks. However, Banks in SA have suggested the PPP approvals processes requires streamlining

  15. Key Findings cont … • Private Sector has continued appetite for PPPs’ • SA Banks indicated that their appetite would intensify if processes are streamlined and transactions values increased • UK Banks have expressed interest to pursue PPPs’ in emerging markets in view of increased competition and high bidding costs in the UK PPP market • PPP models: • Traditional Partnerships • Strategic Partnerships: • LEF Education (eg. BSF) • LIFT Health • Funding • Historically high levels of gearing (debt levels going in excess of 90%) • Increased appetite from equity financiers (emergence of a secondary market for refinancing + emergence of new equity infrastructure funds)

  16. Recommendations: The Case for PPPs’ • SA must accelerate the implementation of PPPs’ • SA could apply both the Traditional and Strategic Partnership PPP models • SA must ensure proper planning in the implementation of PPPs’ to minimise the risks identified in PPP models • Government and Private Sector should consider establishing a Project Preparation Fund to assist with high bidding costs • Upfront communication and education with stakeholders, especially the public (i.e PPPs’ must be understood to avoid criticisms against perceived PPP shortcomings)

  17. Thank you …Questions ?

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