http://www.engineeringnews.co.za
  SEARCH
Login
R/€ = 14.20Change: 0.17
R/$ = 11.58Change: 0.07
Au 1198.59 $/ozChange: 4.13
Pt 1200.50 $/ozChange: 3.00
 
 
Note: Search is limited to the most recent 250 articles. Set date range to access earlier articles.
Where? With... When?








Start
 
End
 
 
And must exclude these words...
Close Main Search
Close Main Login
My Profile News Alerts Newsletters Logout Close Main Profile
 
Agriculture   Automotive   Chemicals   Competition Policy   Construction   Defence   Economy   Electricity   Energy   Environment   ICT   Metals   Mining   Science and Technology   Services   Trade   Transport & Logistics   Water  
What's On Press Office Tenders Suppliers Directory Research Jobs Announcements Contact Us
 
 
 
RSS Feed
Article   Comments   Other News   Research   Magazine  
 
 
Sep 28, 2012

PPPs will contribute to future prosperity in Africa – advisory firm

Back
Construction|Engineering|Natal|Africa|Cement|Deloitte Corporate Finance|Education|Flow|PROJECT|Projects|Property Development|Resources|South Africa Incorporated|Africa|South Africa|Nelson Mandela Academic Hospital|Balance-sheet Finance|Communications Technology Projects|Finance|Flow|Maintenance|Mining|Property Development|Service|Eastern Cape|Edward VIII|Infrastructure|Labuschagne|Bearing|Eastern Cape|East Africa|South Africa|Southern Africa|Sub-Saharan Africa|West Africa|Broadband
Construction|Engineering||Africa|Cement|Education|Flow|PROJECT|Projects|Property Development|Resources||Africa|||Flow|Maintenance|Mining|Property Development|Service||Infrastructure||Bearing|||
construction|engineering|natal|africa-company|cement-company|deloitte-corporate-finance|education-company|flow-company|project|projects|property-development-company|resources|south-africa-incorporated|africa|south-africa|nelson-mandela-academic-hospital-facility|balance-sheet-finance|communications-technology-projects|finance|flow-industry-term|maintenance|mining|property-development|service|eastern-cape|edward-viii|infrastructure|labuschagne|bearing|eastern-cape-province-or-state|east-africa|south-africa-region|southern-africa-region|subsaharan-africa|west-africa|broadband
© Reuse this



Africa is entering a 20- to 30-year infra- structure development boom, with governments on the continent committing to developing infrastructure worth billions of dollars; however, funding remains a challenge.

“African governments have historically financed a sizeable share of the continent’s infrastructure development on balance sheet,” says global financial advisory firm Deloitte Corporate Finance advisory leader for sub-Saharan Africa André Pottas.

This means there is a limit that can be spent to fund backlogs and develop new infrastructure projects.

He says there is a limit to National Treasury’s capacity to issue government bonds to raise revenue for funding infrastructure projects, before it impacts negatively on South Africa Incorporated’s (SA Inc’s) credit rating, which will lead to higher sovereign borrowing costs.

This is why South Africa’s planned infrastructure roll-out scheme will be constrained by budgetary restrictions unless government turns to the private sector and private sector partnerships for a portion of the required funding, says Pottas.

“Local banks are often not able to supply the tenor of loans needed for long-term infrastructure investment; therefore, for the continent’s infrastructure backlogs to be cleared, some form of collaboration with other private sector players is a necessary and important precondition.”

Pottas lays out a variety of financing instru- ments and structures, including public- private partnerships (PPPs), which will allow government to take on infrastructure projects that exceed National Treasury’s borrowing capacity.

He believes PPPs will achieve greater delivery in a shorter period than simply relying on the fiscus and says the first step is to identify and analyse a potentially successful project to define the most appropriate funding mix between government resources and the variety of private financing instruments available on the market.

“Just as government has the opportunity to move beyond balance-sheet finance, so does the private sector need to be creative in how it partners with government,” says Pottas.

“Both government and the public sector are currently bearing a level of frustration and mistrust, which needs to make way for an open, transparent and honest partnership and risk-sharing ethos if PPPs are to deliver their true capacity to add value to projects,” he adds.

Implementing PPPs in South Africa

Deloitte Corporate Finance associate director JP Labuschagne believes the PPP market is one of the most underdeveloped areas in finance with the greatest potential for infrastructure delivery.

“A PPP gets government to look at a defined construction cost, as well as the maintenance and full life-cycle costs of large infrastructure projects. It’s also an effective way to leverage government money through private sector financing, enabling government’s budget to go further.”

However, Labuschagne acknowledges that the delivery of PPP projects in South Africa has been erratic and that the projects take a while to come to fruition. He attributes this not only to the complexity of the projects, but also to the varied skill levels, or lack thereof, in the private and public sectors.

Projects in Progress

“PPPs can be applied across a variety of projects across various sectors, ranging from brick-and-mortar projects to information and communications technology projects. This demonstrates the suitability of PPPs for government service delivery,” says Labuschagne.

He tells Engineering News that Deloitte’s current advisory projects cover broadband infrastructure roll-outs and the establishment of national emergency call centres.

The advisory firm is also supporting the national Department of Health (DoH) on the procurement of two hospital projects, King Edward VIII in KwaZulu-Natal and Nelson Mandela Academic Hospital in the Eastern Cape. These projects form part of the DoH’s hospital revitalisation programme, which comprises the refurbishment of six facilities.

Further, Deloitte is supporting the KwaZulu-Natal Department of Education regarding its plans to build and refurbish a number of schools using a PPP model.

In the corporate realm, the firm is raising funds for a plant expansion on behalf of a cement manufacturer in sub-Saharan Africa and is advising several mining houses in the region on their capital programmes.

It is also advising on a large mixed-use property development in West Africa, besides other large capital project advisory mandates.

Pottas stresses that the Deloitte Infrastruc- ture and Capital Projects team operates as an integrated sub-Saharan Africa team, with resources in East and West Africa in addition to the Southern Africa team.

The Infrastructure and Capital Projects team includes engineers, quantity surveyors, bankers, economists, masters of business administration, lawyers, actuaries and tax- ation specialists.

“We, therefore, have a comprehensive in-house transaction advisory capability across the full life cycle of a capital project,” he says.

SA’s Evolving Financial Landscape

Pottas tells Engineering News that Deloitte plans to introduce several funding instruments to the South African market to support the financing of infrastructure projects.

Prevalent overseas, these instruments will be tailored for local market conditions and investor appetite, he says.

This will make more projects a reality. Pottas notes the National Treasury’s 2012 Budget Review, which reports a R3.2-trillion infrastructure expenditure plan over the next ten years.

However, of the current infrastructure projects in the pipeline, only 25% are said to be financed and currently being implemented, while the remaining 75% are still being assessed by National Treasury for financial feasibility and funding.

“National Treasury has acknowledged that government will not be able to fund all the projects by itself and they will, therefore, require private-sector financing to be con- sidered for implementation,” says Pottas.

“This supports the contention that innovative new funding models and financing instruments need to be developed, and new pools of infrastructure investors and financiers need to be sought to deliver the required infrastructure needs without putting undue additional strain on the national fiscus and the credit rating of SA Inc.”

He outlines some key funding tools prevalent in developed financial markets, such as project-specific financing, which allows entities to raise funds for specific projects with the cash flow from the project. The cash flow is ring-fenced to secure the repayment of interest and capital to the lenders.

“This allows corporates and governments to fund large capital projects without impacting on their balance sheet credit rating,” says Pottas.

He predicts that this type of funding will soon become prevalent in Africa. “We will start to see more innovative funding tools and the two we need to keep an eye on are infrastructure fund investments and project bonds,” he says.

“Pension funds are also likely to move into infrastructure investing, given the attractive matching of long-term liabilities with the typical long-term return associated with infrastructure assets.”

Pottas also highlights increasing interest from foreign infrastructure investors and other institutional investors.

Edited by: Chanel de Bruyn
© Reuse this Comment Guidelines (150 word limit)
 
 
 
 
 
 
 
 
Other Financial Services to Industry News
YOLANDE SCHOÜLTZ Payroll fraud can damage the bottom-line of many South African businesses
Payroll is one of the biggest expenses in any small or medium-sized enterprise (SME), yet it is also one of the areas most likely to be neglected in terms of risk management, according to multinational enterprise software company Sage.
MIKE DONALDSON Not all companies have security to offer the banks
Using private equity to gain capital, especially for small to medium-sized enterprises (SMEs) that might not meet the criteria to qualify for bank loans, seems like a preferential means of raising capital in South Africa’s current tough economic climate, according to...
TREVOR HOOLE South Africa’s banking supervision, for years, has been at the forefront of conduct and helped to shape local legislation
South Africa’s banking sector is one of the best in the world, in terms of management and conduct, according to audit, tax and advisory firm KPMG.
More
 
 
Latest News
China appears to have been routinely underestimating output from its sprawling steel sector, with official figures for last year alone 40-million tonnes below a key industry estimate - an amount equivalent to Germany's entire annual production. Beijing has vowed to...
Lumwana, Zambia
Canada’s Barrick Gold Corp will suspend operations at its Lumwana copper mine, in Zambia’s Northwestern province, after the country enacted legislation that raised the royalty rate on openpit mining operations from 6% to 20%. TSX- and NYSE-listed Barrick, the world’s...
The Labour Court in Johannesburg has set aside the 2011-2014 metal sector wage agreement, the National Employers' Association of SA (Neasa) said on Thursday. The 2011-2014 wage deal was the result of an agreement between the Steel and Engineering Industries...
More
 
 
Recent Research Reports
Liquid Fuels 2014 - A review of South Africa's Liquid Fuels sector (PDF Report)
Creamer Media’s Liquid Fuels 2014 Report examines these issues, focusing on the business environment, oil and gas exploration, the country’s feedstock supplies, the development of South Africa’s biofuels industry, fuel pricing, competition in the sector, the...
Water 2014: A review of South Africa's water sector (PDF Report)
Creamer Media’s Water 2014 report considers the aforementioned issues, not only in the South African context, but also in the African and global context, and examines the issues of water and sanitation, water quality and the demand for water, among others.
Defence 2014: A review of South Africa's defence industry (PDF Report)
Creamer Media’s Defence 2014 report examines South Africa’s defence industry, with particular focus on the key participants in the sector, the innovations that have come out of the sector, local and export demand, South Africa’s controversial multibillion-rand...
Road and Rail 2014: A review of South Africa's road and rail infrastructure (PDF report)
Creamer Media’s Road and Rail 2014 report examines South Africa’s road and rail transport system, with particular focus on the size and state of the country’s road and rail network, the funding and maintenance of these respective networks, and the push to move road...
Real Economy Year Book 2014 (PDF Report)
This edition drills down into the performance and outlook for a variety of sectors, including automotive, construction, electricity, transport, steel, water, coal, gold, iron-ore and platinum.
Real Economy Insight: Automotive 2014 (PDF Report)
This four-page brief covers key developments in the automotive industry over the past 12 months, including an overview of South Africa’s automotive market, trade figures, production and the policies influencing the sector.
 
 
 
 
 
This Week's Magazine
South Africa remains an important manufacturing and export platform for Ford Motor Company, says executive chairperson Bill Ford. However, he adds that other countries on the continent are “becoming interesting”, and that the US carmaker is casting its net wider for...
TO BE PHASED INTO SERVICE The first MeerKAT dish, with another 63 to come
Germany’s Max-Planck-Society (MPG) and the Max-Planck-Institute for Radio Astronomy (MPlfR) are investing €11-million (about R150-million) into South Africa’s MeerKAT radio telescope array programme. The money will be used to design, build and install S-band radio...
Infrastructure spend in sub-Saharan Africa will grow from $70-billion in 2013 to $180-billion by 2025, says PwC capital projects and infrastructure Africa leader Jonathan Cawood. This is one of the findings of PwC’s Capital Projects & Infrastructure report on East...
Private-owned defence and aerospace manufacturer Paramount Group and the Ichikowitz Family Foundation unveiled its Anti-Poaching Skills and K9 Training Academy in Magaliesburg last month.
MATT BARKER Wireless networks should enable users to engage and must provide relevant information to them based on their activity and location
The inclusion of Bluetooth to provide sub-three meter accuracy and heightened functionality for users is one of the ways to change existing wireless networks into engagement networks. An engagement network differs from common wireless networks in that it enables the...
 
 
 
 
 
 
 
 
 
Alert Close
Embed Code Close
content
Research Reports Close
Research Reports are a product of the
Research Channel Africa. Reports can be bought individually or you can gain full access to all reports as part of a Research Channel Africa subscription.
Find Out More Buy Report
 
 
Close
Engineering News
Completely Re-Engineered
Experience it now. Click here
*website to launch in a few weeks