The creation of an efficient private sector debt market for the financing of public service projects in South Africa.

Abstract

This paper focuses on the lack of an efficient private sector debt market for the funding of public sector projects. A brief synopsis is presented on the current listing activity on the Bond Exchange South Africa (BESA), which highlights the lack of private sector participation in public sector projects. Research is conducted on an international and a local basis with the use of a self-administered questionnaire to establish the extent of private sector funding in public projects. The results of this research reveal that whilst many jurisdictions recognise the role of the private sector in funding public sector projects, many have yet to see the benefits that flow from the private-public partnership initiatives that have been implemented in the developing countries such as China, Taiwan and South Korea. In this regard, however, South Africa has already gone a long way in the process of developing a public-private partnership program with the implementation of regulations and a separate unit being established at National Treasury to facilitate such programs. Nevertheless, the municipal sector of the country still needs to promulgate critical legislation to allow for greater involvement by the private sector in financing the infrastructure needs of local government. To provide detail to the study, an interview was conducted with the listing director of BESA, which highlighted important concerns of investors and also presented solutions to address those concerns relating to the lack of development of the private sector funding of public projects. The main concern of investors relate to the lack of proper governance structures in municipal and other government organs. The proposed solution to address the concerns of investors is to adopt innovative financing techniques to attract private investors to such projects, such as the use of securitisation schemes. Finally the study also highlights gaps in extant knowledge relating to the use of private sector funding in South African public sector projects. The study finds that more research needs to be conducted into the financial engineering techniques that have been successfully employed in countries that have more experience in developing a private sector debt market for the funding of public sector projects.