South Africa World Cup Showcases The Success Of Its PPP Model

wc2010logo

By Henry Teitelbaum, managing editor, P3 Planet.com

When the 2010 FIFA World Cup kicks off in a few days  in South Africa, it will cap an extraordinary years-long effort by the leading economy of Africa to host the world’s favorite sports extravaganza.

In no small way, it will also show how partnerships on a grand scale between the public and private sector, when executed with the right planning, can deliver infrastructure projects on-schedule and on-budget. Even more important than a successful football tournament, though, South Africa will have demonstrated to the world that the PPP model can simultaneously build badly needed public assets, create long-term employment and stimulate a flagging economy  while inspiring the can-do spirit of a nation.

It is a moment to savour not just for Africa, but for all of the developing world because many said it couldn’t be done.

 

Success Is No Accident …

It’s important to note  that while South Africa’s successful delivery of infrastructure for the games sets the standard for future large undertakings of this kind in other developing countries, it would be wrong to assume that it can be done without a great deal of intelligent long-term planning. PPP requires not only a well-developed legal framework to be successful, but skilled public administrators that can manage a transparent and rigorous process through the life of a long-term contract to ensure value-for-money for the public is maximized.

South Africa’s government has in fact been getting acquainted with the PPP model since 1997. The National Treasury formalized PPP regulations and created an active PPP unit to provide technical assistance in 2000, and now has well-developed legislative frameworks in place for national, provincial, public authority and municipal PPP projects. The scale is still small, with the country having procured a total of 19 projects to date. But the list of projects being evaluated or in the pipeline, currently around 55, includes activities in everything from roads and prisons to municipal water, tourism and hospitals.

PPP has also started to take up a significant share of the South African government’s spending, accounting for some  5.7% of the most recent fiscal year’s spending and 6.6% of GDP – its highest ever. Further enhancements to the legal and regulatory framework, notably for the harmonization in 2007 of guidelines for undertaking PPPs that deliver municipal services, are generating a strong pipeline of municipal PPP projects.

… But Investing Needs To Start Early

When South Africa failed to win its previous bid to host the World Cup in 2006, it came down to what organizers deemed the country’s inadequate infrastructure. So in its ultimately successful bid to host the 2010 event, the South African government outlined and then set about delivering an ambitious program of infrastructure investment. Between 2006 and 2010, that investment has totaled some 600 billion rand ($78 billion), with 170 billion rand of that going into transportation infrastructure alone.

Infrastructure investments included upgrading airports, renovating stadiums, and expanding road and rail networks. Many of the projects were delivered using conventional procurement methods. But the most iconic of these infrastructure projects undertaken, and certainly the most significant in terms of its long term impact on the lives of ordinary South African citizens, will be the R25.4 billion rand Gautrain PPP rail project.

The Gautrain is a 80 kilometer mass rapid transit rail project, the first phase of which is now complete, except for some final testing of the trains. It officially enters service on June 8, when sleek trains will start whisking thousands of fans from the newly renovated OR Tambo International Airport towards Johannesburg and its nearby sports venues.

When the final phase is completed next year, the route will stretch through the densely populated Gauteng province to link South Africa’s largest city, Johannesburg, with its capital, Tshwane (Pretoria) as well as the airport.

Sustainable Urban Transport Solution

The Gautrain is a masterful expression of mega-planning at its best.

Designed to eventually carry 100,000 passengers a day, the Gautrain will relieve congestion on one of South Africa’s busiest motorways, where traffic is growing at a rate of 7% a year. Equally important, it will create the first public transport link between two cities with a combined population of New York and Paris, whose city centers are only 58 kilometers (36 miles) apart.

Besides lowering traffic congestion long after the World Cup crowds have returned home, the Gautrain will produce annual savings equal to $58 million in accident costs, travel cost savings of three South African cents per kilometer and significant reductions in vehicle operating costs.  Once it  is permitted to reach its 160 km maximum speed, it will reduce the time it takes to travel from end-to-end to 42 minutes, and along the way save the planet a whopping 100 tons of carbon dioxide emissions each year.

The Gautrain project is a 20-year construction and operating PPP concession awarded to Bombela in 2002 after two groups submitted bids for the project. Bombela is a consortium made up of Canada’s Bombardier, construction firms Bouygues and Murray & Roberts, and Strategic Partners Group, a broad-based consortium of black-owned companies. France’s RATP Developpement, although not an equity partner, is also a key contributor.

A Keynesian Lift For South Africa’s Economy

At least as startling as the benefits that the Gautrain will bring to the people of South Africa are what it has already helped the economy to achieve. In 2008, while the U.S., Europe and much of the developed world began to feel the effects of the financial crisis, South Africa’s commodity-driven economy suffered its first recession in 17 years and one of the sharpest economic slowdowns on the African continent. GDP contracted by nearly 2% that year, and things might have gotten far worse had the government’s spending program for the World Cup not already been underway.

The Gautrain project alone has created 63,200 direct, indirect and induced jobs, according to the consortium, which also estimated that Gautrain will create 93,000 jobs during the construction phase and another 3,000 jobs per year during operation. Another estimate valued the amount of  business activity that will be generated by Gautrain at R3.6-billion per annum.

Perhaps, then, it should come as no surprise that South Africa’s economy is now one of the most resilient in the western world, with GDP in 2010 expected to rise nearly 3% after three consecutive quarters of positive growth, much of it attributed to preparations for the World Cup.

Besides contributing to South Africa’s economic recovery, the Gautrain project will achieve key objectives described in Gauteng’s Growth and Development Strategy, including requirements for Broad Based Black Economic Empowerment in terms of ownership and control; skills transfer and preferential procurement. Emphasis is also placed on the empowerment of women, youth and people living with disabilities.

Justifiable Pride

All-in-all, South Africa’s willingness to engage private sector skills, financing and delivery capacities through the PPP model look likely to deliver not only one of the most successful World Cup tournaments ever, but a permanent boost to its economy and to its people’s well-being that will inspire future generations.

With the eyes of the world tuned to the games that will take place there over the next month, one can only hope that South Africa’s example will inspire public authorities (everywhere to master the skills they need to use PPP effectively.

Henry Teitelbaum is a London-based international financial journalist and author, most recently of the PFI Market Intelligence Report, PPP: Challenge and Opportunity After the Financial Crisis, which was published by Reuters in September 2009. He is reachable at Henry@P3Planet.com.

(This article has also been published in Infrastructure Journal)