NEWS: Infrastructure delivery: back to basics

There is no shortage of money in the private sector to invest in public infrastructure, but the private sector remains reluctant to partner with the state, having lost confidence in the government’s ability to procure and manage large projects.

The National Planning Commission (NPC) has released a scathing report on the state’s continued failure to deliver infrastructure within budget and on time, blaming its lack of professional management expertise as well as overly bureaucratised procurement processes.

The report is co-authored by Ron Watermeyer, Wits University visiting adjunct professor and the director of consulting firm Infrastructure Options, and the Development Bank of SA’s Sean Phillips, who is the interim head of the implementation unit of President Cyril Ramaphosa’s blended public-private Infrastructure Fund. Phillips writes in his private capacity.

The draft discussion document, which was open for public comment until this week, reviews the progress being made towards meeting the NPC’s long-term vision in the area of infrastructure delivery — and recommends course-correcting reforms to bring it back on track.

Though there are many government bodies that are delivering quality infrastructure cost-effectively, the report finds that, on average, SA’s infrastructure remains at risk of failure and poses a "serious problem" for the economy.

"Sanitation facilities are in a very poor condition. Provincial, metropolitan and municipal gravel roads are unfit for purpose, while paved provincial and municipal roads are at risk of failure," notes the report.

Underspending has become the order of the day. On average, between fiscal 2015 and fiscal 2017, state-owned enterprises (SOEs) and public entities spent no more than 75% and 65% of their respective capital budgets.

In addition, public sector infrastructure expenditure has been adjusted downwards every year since 2017, bringing the total reduction since then to R303bn. At this rate, the target for public infrastructure investment to reach 10% of GDP is unlikely to be achieved, the report concludes. Currently, it is just under half of this.

But despite the obvious need to increase spending on public infrastructure, the private sector remains reluctant to partner with the state, having lost confidence in the government’s ability to procure and manage large projects.

"There is no shortage of money in the private sector to invest in public infrastructure," states the report. "The problem is a dearth of properly prepared and bankable projects, as well as a lack of transparent, efficient and effective processes for bringing projects to the market."

The upshot is that less than 2% of public infrastructure in SA is financed by the private sector, compared with 50% in the UK, for example.

So, what has gone wrong?

The paper’s key finding is that the government needs to improve its infrastructure procurement and delivery management. A big part of the problem is that there is a critical shortage of professionals with built-environment skills and experience across all spheres of government.

This lack of in-house technical expertise results in an inability to take appropriate decisions (when planning, specifying, contracting and procuring infrastructure), as well as an inability to ensure that the work is done to an adequate standard, or to maintain the infrastructure afterwards.

Overly bureaucratised procurement processes are also partly to blame. For instance, the report is critical of certain National Treasury supply chain management instructions, issued after its creation of the post of chief procurement officer in 2013, for not taking into account the specificities of the construction industry.

The requirement, for example, that SOEs obtain Treasury permission for all deviations above 20% from contract amounts or those larger than R20m — though understandable in an era of state capture and endemic corruption — "has made matters worse", say the authors.

"The nub of the problem has been the treatment of the procurement of infrastructure in the same way as the procurement of general goods and services, and the lack of recognition of the need to take a more sophisticated approach to infrastructure procurement, including allowing for professional judgment to be exercised," they explain.

"There needs to be a shift from treating it as an administrative exercise, to be controlled by a one-size-fits-all set of rules, to treating it as a complex process requiring professional judgment and organisational leadership."

The authors see the new Public Procurement Bill as "a step in the right direction" because it differentiates infrastructure procurement from the procurement of general goods and services.

"But government needs to go further than this," they say. "Much more guidance and capacity building of government bodies is required."

The authors remain hopeful that private sector confidence in state procurement can be restored if the government can professionalise its client functions, publish a pipeline of projects and deliver them on time.

National planning commissioner Miriam Altman says the lack of state capacity highlighted in the report "is certainly within our power to fix".

She considers the R815bn that government has budgeted for infrastructure over the medium term "a major stimulus opportunity", as long as the full amount is spent and the quality of spending can be improved.

Source: Business Day

HAVE YOUR SAY: How can the SA government attract the private sector to invest in public infrastructure projects?