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WHY BEE AND PUBLIC PRIVATE PARTNERSHIPS COULD WORK

Paul Janisch | 13 Feb 2023


While relatively new to South Africa, public-private partnerships have incredible potential to deliver on empowerment measures.


A recent article indicated that Transnet is considering outsourcing its container corridor between Durban and Johannesburg. The proposal appears to be some sort of an interim solution with the winning bidder handing it back to Transnet in 20 years.


To me this seems like a public-private partnership (PPP). It also suggests that state-owned entities (SOEs) may be softening their attitude to these partnerships.


PPPs are without doubt the most effective tool the government has to achieve its Black Economic Empowerment (BEE), reconstruction and development programme and other empowerment-related goals. Yet this method of procurement is not making the most of these opportunities.


The problem seems to be that the transaction advisors that are used in the early stages of the feasibility study are not suitably aware of empowerment requirements and structures that PPPs would like to achieve in the long term. The majority of these bid documents contain antiquated empowerment requirements that might deliver a narrow type of empowerment structure that ultimately benefits very few people.


The empowerment criteria for PPPs are contained in Module 2 of the National Treasury PPP Practice Note of 2004. The practice note precedes the Department of Trade and Industry’s broad-based BEE codes of good practice (COGP) by about three years, but a careful reading of both the COGP and the practice note reveals that they are remarkably similar and that a standard COGP implementation will more than likely cover almost every requirement that Module 2 has laid out.


Interestingly the Municipal Service Delivery and PPP Guidelines have deviated from Treasury’s module 2 and incorporated the DTI’s codes of good practice into its requirements – suggesting perhaps that the Treasury module will follow suit in the future.

The stated empowerment objectives of PPPs include

  • Increasing levels of black ownership and management

  • Development of local skills

  • Development of supporting entrepreneurship

  • Creation of local jobs (directly and indirectly)


It is the last three objectives that tend to be ignored in most PPPs.


The management and ownership requirements are pushed to the fore and more often than not benefit people who may not reside or have any roots in the area that the PPP has targeted.


It may appear that empowerment has been achieved but, without the required emphasis on local economic development, the local population might come out of this process completely neglected.


Perhaps the best way to explain this process is to use an example of a PPP that we worked on in a remote area of the Eastern Cape.


Case study


The specific project was located in a region that was a labour sourcing area during apartheid. It is still suffering from the chronic ravages of this policy and as a result has virtually no infrastructure, with an economically active population that is mostly female with a high HIV infection rate.


It stands to reason that any investment in this area must have some positive impact on the local community. Our job was to ensure that the empowerment requirements would continuously develop that local community.


Using both module 2 and the DTI’s codes as a starting point we recognised that the construction phase was unlikely to employ any of the local population on a permanent basis. As such, budgets that would typically be allocated under a standard BEE scorecard were re-allocated to other areas of the scorecard that would see a greater investment in the local community.


We specified that the local community (i.e. people living within a 50km radius of the target area) was to be used, because the DTI’s BEE scorecard only speaks of black people – not local people. This means that without specifying local investment it is conceivable that a company operating in this area could be fully compliant by investing in any other area. The facilities’ management scorecard built on the BEE foundations laid by the construction phase and increased the number of local people employed on a permanent basis over a ten-year period. The modifications to the scorecards were within the ambit of module 2.


The single most important feature of a PPP is that the Treasury Manual insists that all empowerment requirements are made contractually binding on the winning consortium, with penalties for non-compliance.


Of course this requires both the government and the private party to measure their BEE performance. If the prescribed scorecard deviates so far from a standard scorecard then there is no conventional method of measurement. Verification agencies have been mandated to measure empowerment based on either the DTI’s scorecard or a sectoral charter and do not have the legal capacity to measure any other type of scorecard that deviates from these norms. This means that an additional third party has to be contracted to measure and report on this.

PPPs are still relatively new to South Africa and their efficacy is not yet fully tested. But there is little doubt that they have incredible potential to deliver on government’s empowerment measures.

It is very important that these measures are carefully thought out at the early stages of any PPP, because it may be very difficult to change them ten years down the line when it is realised that they are not achieving what all stakeholders hoped they would. Proper advice at the outset mitigates this risk.

Paul Janisch is a BEE consultant with wide experience in the transaction phase of a number of PPPs.


‘Disclaimer - The views expressed here are not necessarily those of the BEE CHAMBER’.





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