Actual delivery on South Africa’s R802-billion public infrastructure programme could offer an important “shock absorber” for the South African economy in the context of the slower-than-expected domestic recovery, as well as the potential for recession in key partner markets during 2012, Business Unity South Africa (Busa) stressed on Monday.

But deputy CEO Raymond Parsons added that the business community remained distressed at the current failure of all three tiers of government, as well as State-owned companies, to spend their capital budgets as planned and called for urgent action to deal with the problem.

He welcomed the acknowledgement by government that infrastructure spending was lagging budget allocations, as well as efforts to strengthen the management of capital budgets. In the context of plateauing growth there was a need for “every rand to make its presence felt” and the recent creation of a Presidential commission to oversee and leverage the infrastructure roll-out, in support of growth and job creation, could support that objective.

However, the correct balance also had to be struck between cost recovery from the users of the services and general tax funding. “While business supports the need for better infrastructure, the ‘bunching up’ and cumulative effect of excessive rises in administered prices is currently having a negative impact on our economic performance.”

There was also a need, Busa said, for public-private partnerships (PPPs) to be deployed on a larger scale in order to offset capacity constraints and delivery logjams.

Parsons admitted that PPPs had not always been well designed in the past and that a framework was required to ensure a “win-win” outcome that was affordable for users and the country as a whole. “To facilitate delivery we need to experiment with all kinds of new partnerships between the State and private enterprise," Busa argued in its Economic and Business Outlook for South Africa 2012.

But the document lamented the fact that the PPP mechanism was still set to play only a “marginal” role over the medium term. The cumulative public sector infrastructure spend between 2006/7 and 2012/13 would be about R1.47-trillion, but PPPs would contribute only R51-billion over the period, representing a yearly average of 3.3% of the country’s total infrastructure spend.

On average, PPPs had represented just 0.6% of yearly gross domestic product (GDP) between 1994 and 2010, while in Brazil they had represent 0.8%, in India 1.1%, and Thailand 1.1% of GDP between 1990 to 2010.

“There is real interest from the private sector in more PPPs and a strong official commitment in this regard would therefore be welcome,” Busa said.

Strengthening the flow and predictability of PPPs could also open the door for engagement on the high transaction costs that the current “ambivalence” with respect of PPPs had created – an ambivalence that was evidenced by the suspension of bids and the protracted delays in achieving financial closure.

“We acknowledge significant facilitation work is required with the implementation of PPPs, which places pressure on the technical capacity of national line departments, provincial governments and municipal governments. Business would welcome opportunities to assist in this regard, especially through the National Treasury PPP Unit.”

CRISIS SUMMIT

As with government, Busa had cut its growth outlook for 2011 to 3.1%. However, the representative business body was less optimistic than government about prospects for 2012. It was anticipating GDP growth of just 3% next year, compared with government’s forecast of 3.4%.

Parsons was also concerned that the outlook could worsen further unless a credible plan emerged from the December 9 European summit, which was being held to deal with the sovereign debt crisis in the 17-country eurozone.

He even suggested that it might become necessary for the Southern African Development Community (SADC) to hold a crisis summit in early 2012 to discuss ideas and action plans to shield the region from any possible fallout from the collapse of the eurozone, or a protracted slowdown of European economies, which remained key trade and investment partners.

“The global economy has entered a dangerous new phase,” Parsons said, adding that even prospects for emerging market economies had become more uncertain.

“South Africa must concentrate on the factors over which it does have control and which could make a difference to outcomes,” he said, while again highlighting delivery on the infrastructure programme as a key controllable.