Iyaloo Ya Nangolo
25 June 2009
opinion
1.1 Episteme
Victor Hugo once remarked that 'you can resist an invading army; but you cannot resist an idea whose time has come' with such few a words.
I submit that after almost 20 years of our hard fought independence, time has come for new generation of ideas and approaches to advance our socio-economic development.
However if some of emerging trends in the media are anything to go by, one is tempted to conclude that we are, once again confronted with a moment when we either have to combat the old 'swart gevaar' mentality or adopt forward-looking and proven hybrids approaches in leveraging our development in an economically, environmentally and socially sustainable manner. Public private partnership (PPP) is but one of the options proven in developing public infrastructures. While I am not about to give a lecture on the topic of PPP, the fact is that the PPP model today is the preferred way forward for most public developmental projects.
The PPP approach to advancing socio-economic development was pioneered in USA in 1960s and introduced in UK in 1980s and later in Europe after the fall of the Berlin wall. It is no surprise therefore to uncover that Namibian apartheid trained 'experts' do not grasp the importance of the PPP concept of procuring developments in a post apartheid and independent Namibia or South Africa for that matter. Most of today celebrated projects such as EuroTunnels, London Eye, and even power generation and water desalination in the Kingdom of Saudi Arabia had been procured via PPP. Alas, it is thus unfortunate that the so-called 'investigative' journalist by comparing the model with 'selling' just proves his ignorance of this concept or alternatively is deliberately attempting to sow farfetched public outrage through misinformation, miseducation or misconstrues of the progressive approach taken by NWR which I as a patriotic Namibian and internationally trained scholar cannot let go unchallenged.
I wish to point out at the onset that my motivation for challenging that misleading and misinformed article, is not indirectly "force" the reader of this article to crash course in Finance 101 or even Macro Risk Management 104 on de-risking, laws of efficient market, or behavioural finance and other financial concepts to gain a better understanding of PPP concept per se, or spend time looking for proven track record of the PPP concept application in Namibia, but rather will endeavour to elucidate an interest in this field, so that the likes of the "occasional" wind surfer could comprehend, by expounding the fundamental distinctions between the PPP to outright privatisation 'selling' as methods of funding developments. It is my contention that PPP, unlike privatisation, is driven by the need to fast track sustainable development while expediting service delivery and addressing alleviation of poverty, ignorance and other social evils.
Any corporate leader of astute vision will from time to time have to make financing decisions to the benefit of their enterprise. This might be the most important of decision any corporate leader, investor, entrepreneur and in indeed government or their State Owned Enterprised (SoE) into making or forfeiting a particular development (Sirmans and Jaffe, 1988; McMahan, 1976:132; Swanepoel, 1989). Yet few SoEs appreciate alternatives and efficient ways to achieve effective and appropriate financing models, for sustainable developmental opportunities such as PPP. PPP in a nutshell is an economic reform strategy to deliver high quality services in an initiative that leverages the innovations and efficiency of private sector within the society.
Fraser (2002) stresses that choosing an appropriate financing methods determines the viability of developmental projects and the supply of new opportunities, or what Peter Drucker, a distinguished management guru, calls 'creative destruction' or 'upsets and disorganises'. Furthermore, Fraser (2002) points out that such methods allow a collaboration of between public and private bodies in unlocking opportunities to the public at large. It's perhaps here important to highlight the contrast between PPP and privatisation. which is NOT pure 'selling' as (John) Grobler purports in his ill informed article of 17th June 2009 in the Namibian . The later had been associated with the SAP (Structural Adjustment Programme) that western financing power houses such as IMF and world Bank had foisted on developing countries which I am sure as are many of well informed readers, is the main reason for quagmire economical underperformance of recipient economies of SAP in 1980s up 90s. SAP privatisations lead to untold human suffering in developing economies, through lack reliable services and products provisions. While at the same time it saved as a harbinger of expansion of multinationals corporate in a crusade referred as globalisation, which lead to a big advance in capitalisation since the World War II. Contrary, PPP is provides a safeguard against downside risks to the public of lack of service provision as well as incentivising the private sector in ensuring a durable amortisation of the investment is recouped with emphasis on multiplying their growth so as benefits can indeed be achieved economically, socially and environmentally, triple bottom line.
There are a number of factors, relating to public sector, such as cash and resources constraints. Needless to say that, in many developed countries, the demand for new developmental projects is growing in quality and quantity. Such surge is due to, but not limited to natural growth of world economy, globalisation and need for efficiency in product and service delivery. There is also rising pressure for funds to renew, maintain and operate the existing infrastructure. Competition for such funding is often intense not just between infrastructure projects but also with many other demands on public sector finance. PPP therefore permits the SoEs to substantially reduce capital expenditure and convert the infrastructure costs into affordable operating expenditure spread over an appropriate timescale.
PPPs thus allow each partner to concentrate on activities that best suit their respective skills. For in the public sector the key skill is developing policies on service needs and requirements, while for the private sector the key need is to deliver those services at the most efficient cost. The nature of the PPP process may help to address any historical shortcomings in the public sector procurement in the following ways:
Procurement efficiency-Meeting monetary and time budgets which are frequently overrun in conventional procurement contracts.
Improved accountability - Proper consideration of the long-term on going liabilities that arise, avoiding the possibility of short-term policy decision taken solely on a cash account basis.
Risk Management-Assessment of risk allows developments to proceed with a full range of risks being fully accounted for and priced into the procurement contract.
In contrary, the triple bottom lines were hardly the cornerstone of the privatisation 'selling' model that many pundits are aware of. The privatisation model which is a rather simplistic and a two way process where property changes hands and a capital gain derived from its sale (Schwartz and Kappin, 1995). Furthermore, Schwartz et al (1995) points out that external finance to leverage such acquisitions in increasing the equity profits are highly preferred. The very process which caused the today 'credit crisis'. Let alone a lot of financing methods governing the 'selling' transactions from mainly by debt, mezzanine methods in adjustable rate mortgages (ARM) linked to prime bank rate (Cloete, 1994), etc. Worldwide, however, a variety of alternatives or hybrids to the traditional debt, mezzanine, or equity models property financing methods exist. The suitability of these methods depends on their users acceptability of the risk and return inherited in their model, which is why PPP had been developed to de-risk developmental programme to private sectors.
1.2 Epilogue
PPP concept is new in Namibia. It is hardly understood by the public or even by the "occasional windsurfer" who fancies himself as a community watch dog and quasi "expert" on financial matters. The legislative measures are hardly a good measure to gauge the validity or the understanding of such a process. What is clear however is that the Government of Namibia through its many SoE such NWR are keen in their endeavours of adding value to Namibian public in advocating for this window of opportunity for provision of much needed developments in the neglected but promising touristic locations such as Von Bach, Reho Spa, Mile 14, Daan Viljoen, Reho Spar, Mile 72, Jakkaspults, Mile 108, to name a few of developmental projects that NWR put out for PPP development in accordance with the Government Approved Turn-Around Strategies. It is therefore hoped that the introduction and championing of PPP with SoE such as NWR will provide additional permanent jobs and much needed opportunity to entrepreneurs and indeed investors, such as the author of this article to spur growth in the tourism sectors akin to those in Mauritius and in the developed economies, so as to further grow Namibian economy into becoming a knowledge based economy instead of creating sensational unfounded claims due to misconstruing of dissimilar and unlike terms in order to barely enabling self employment.
- Iyaloo ya Nangolo is a Registered Professional Quantity Surveyor, a Partner at Jordaan Oosthuysen Nangolo Quantity Surveyors, Managing Director of Tungeni Africa Investment Pty Ltd, and Tulive Capital Private Equity Pty Ltd. He holds an MBA in Finance and Entrepreneurship from the University of Cape Town Graduate School of Business and the London Business School. He writes in his own capacity.
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