29 May 2003

Speech by the Chief secretary to the Treasury, Paul Boateng MP, at the South Africa Trade Summit, Johannesburg

1. I am very pleased to be able to join you at the close of this Trade Summit. Economic, political and cultural ties between our two countries are very strong, and made stronger by the engagement of so many of us in Britain with the struggle for a free and non-racial South Africa.

2. This conference takes place within weeks of the second UK-South Africa Bilateral Forum. We share an interest in trade and investment, with two-way trade totalling 10 billion dollars last year, up 40 per cent since 1997, and with three quarters of South Africa's total foreign direct investment coming from British companies.

3. This Summit is, among other things, an opportunity to extend and deepen those links, and I particularly value the opportunity to talk to members of South Africa's government and business community on a range of issues affecting both countries' prosperity.

4. Today I would like to touch on some of those issues:

Our shared concern for economic stability and sound public finances;
The importance we attach to trade and investment in spreading opportunity and prosperity more widely;
The need, alongside private capital flows, for public investment in high quality healthcare, schools and public facilities; and how the Public Private Partnership model is helping to deliver these in the UK and here in South Africa;
And finally, I would like to touch on the challenge facing the whole of Africa, and how the UK and South Africa are working together on an initiative for poverty reduction.

5. In this climate of global economic uncertainty, South Africa has achieved sustained growth through a proud track record of good governance and macroeconomic stability. Both our countries have found that there is no shortcut to sustainable growth and economic dynamism. Only by putting in place the frameworks for stable monetary and fiscal policy with clear long-term goals, have we laid the foundations for growth and investment in public services.

6. This morning I had talks with Alec Erwin and Trevor Manuel, and I was able to stress to him them the UK's strong support and recognition for South Africa's hard won economic success. The investor confidence achieved through these policies has been reflected in the steady appreciation in the value of the Rand after the volatility of 2001, and in the successful public offering of Telkom this March. South Africa's record of fiscal prudence, its low and carefully managed public borrowing, enable the government and business community to face the future with confidence.

Challenges ahead

7. So, what are the main challenges as we move forward?

8. Firstly, of course, I recognize that as well as needing to deliver growth, South Africa faces the immense task of merging what under apartheid were effectively two economies, vastly divergent in their nature and level of prosperity, into one national economy, open to all. This transformation must come through a process involving both government and the private sector, working together. Many companies are already investing in Black Economic Empowerment - not out of mere charity, but because they recognise that long-term business gains depend on enabling millions more people to participate fully in the economy as consumers, employees and shareholders.

9. So it is right that the government's strategy for Black Economic Empowerment should aim to give due credit to companies that are setting the pace for integration - companies whose ownership and workforces reflect South Africa's multi-racial society.

10. Attracting higher rates of foreign investment will also contribute to broadening economic participation, because companies transfer not only money but skills, technology and expertise to the local economy - and access to markets overseas.

11. Another central challenge is to capture the benefits on offer from further trade liberalization. So we must deliver on the commitments made at Doha. Success could add more than $400 billion to global income, of which $150 billion would go to developing countries. The WTO Ministerial meeting in Cancun this September will mark a crucial half way point in the current trade Round. We must remind doubters of the benefits on offer and serious consequences of failure in delivering the Round at a time when the global economic outlook remains uncertain.

12. We must deliver, too, on our commitments to make Doha truly a "development round", by opening rich countries' agriculture markets, and ensuring all developing countries have access to the medicines they need to tackle the major public health crises affecting their societies. There are also massive benefits on offer from further tariff reductions on non-agricultural products, especially important for countries developing their industrial and manufacturing sectors.

13. Macro-economic stability, trade liberalization, higher flows of investment - these are all means to an end. The purpose is a society in which opportunity and prosperity are not the preserve of a few, but in which all have a share. Experience tells us that alongside the benefits of private enterprise, our citizens must have access to modern, efficient public services - education, healthcare and transport - to release their full potential.

Public Private Partnership

14. This is the purpose of the Public Private Partnership, which we developed in the UK as we confronted the need, after decades of underinvestment, to build capacity in our public services.

15. Our past experience in Britain was that traditional public provision and centralized planning had not delivered value for money - projects were often poorly managed, and the quality and coverage of services was mediocre.

16. The previous government had responded to this by privatizing many state owned enterprises - and while some initiatives were highly successful, others were undermined by poor regulation, and a lack of real market competition and incentives to invest.

17. We have learned from the mistakes of the 1980s and early 1990s to forge a distinct approach: the Government must be responsible for public services, but it must also aim to capture the benefits of private sector initiative and efficiency in providing those services.

18. Under Public Private Partnerships, the public sector specifies the outputs it needs from new investment, but the private sector is responsible for determining how those outputs will be met. This transfer of risk reinforces the incentive for the private sector to deliver on time and to budget, and levers in their expertise and capacity for innovation in a competitive environment. This is a seismic shift in the business of government itself. It recognises that in today's world governments are judged not so much on what they own - or even what they spend - but more on what they do.

19. In the UK, we see Public Private Partnerships, including the Private Finance Initiative, as part of a wider reform of the public sector, with the needs of citizens, the users of public services, as the touchstone.

20. Central to this reform is the fundamental shift in government from inputs to outcomes - with public service provision designed not around the convenience of providers, but geared to what will deliver measurable impacts in society - raising skills levels, helping people find and stay in jobs, providing high quality healthcare.

21. And, above all, empowerment comes from the private and public sectors each focusing on what they do best. That means freeing up public sector staff from having to manage facilities - enabling teachers to teach, enabling doctors and nurses to heal.

22. The successes have been considerable. But pioneering and experimenting with PFI in the UK brought problems as well as successes. No one is pretending this is easy. This is a learning experience and no one, I think, has got it completely right yet. In the UK, we have learned several important lessons from the early PFI projects:

We learned that projects must be carefully tailored - there is no one size fits all solution.
We have seen that a PFI project's value for money can be hit when an inexperienced public sector negotiates a private finance deal with a private sector more familiar with investment financing models.
And we have learned that identifying and spreading best practice is crucial.

23. To inject into the public sector the knowledge and skills it needs to manage procurements effectively, driving down bid costs for both sides and ensuring value for money for the taxpayer, we made the Treasury task force - the equivalent of the PPP unit in the National Treasury of South Africa - into an independent company, combining private sector expertise with a strong public sector mission. Partnerships UK works alongside the public sector to help ensure that PPPs are properly structured, commercially viable and that they are driven forward to fruition.

24. The value for money gains PFI can secure are now widely recognised. A recent independent report showed that the Private Finance Initiative has revolutionized government procurement. Before PFI, 73 per cent of government construction projects saw the cost to the public sector run over budget, and 70 per cent of projects come in late. Under PFI, only 22 per cent of projects saw the cost to the public sector rise during construction - and always due to changes in the public sector's requirements as the client - while only 24 per cent were late, with the public sector no longer bearing the costs of construction overruns.

25. Let me give you a couple of specific examples. The Prisons sector has been one of PFI's greatest success stories - Altcourse prison in Merseyside, the first major bricks and mortar project to be delivered under PFI, is regarded as a model for the whole prison service and received an excellent report from the Chief Inspector of Prisons. An independent audit revealed that it cost 10 per cent less than the traditional procurement alternative.

26. And in health - where over 117 healthcare and hospital projects have been signed - the Wythenshawe hospital PFI in Manchester has not only delivered a state-of-the-art 319-bed facility, but its improved siting and layout has cut running costs by £21 million, around 270 million Rand, per year - savings that can be reinvested in patient care.

27. In the UK, our early public private partnerships concentrated on major, largely urban, construction and infrastructure projects. But experience has shown that PFIs are effective not only in advanced urban areas such as those here in South Africa, but are also needed, as the Chancellor has said, in rural development and regeneration.

28. We have now signed PFI contracts for roads improving transport links in rural areas, and for flood defences protecting farms and communities. Over the next few years, the private sector will invest £850 million, about 11 billion Rand, in social housing - helping to transform housing stock and the total urban environment in disadvantaged areas.

29. Let me illustrate some of what PFI has achieved with a short video presentation.

30. South Africa is widely recognised as a leader among developing countries for putting in place an advanced programme of public private partnerships, with a well-developed market and regulatory framework. Over recent years, British companies including Partnerships UK, have been able to play a part in this by contribute their experience and know-how.

31. To projects like the Gautrain Rapid Rail Link, linking Pretoria and Johannesburg as economic hubs, and cutting road congestion.

32. Or the flagship Albert Luthuli Hospital, a project which showed how PFI can not only finance new deals but rescue projects which have encountered problems and recoup investment at risk of being lost. The hospital is a landmark not only in the development of public private partnerships in South Africa, but internationally in developing fully integrated systems into healthcare operations. And it gave the South African taxpayer value for money benefits amounting to 370 million rand.

33. We recognize that the public sector's capacity to be an effective client is key to delivering successful projects, in any country that chooses to use PFI. With this in mind, we are happy that Partnerships UK has been able to contribute its expertise to the National Treasury of South Africa over the last three years, funded by a grant from the UK's Department for International Development. Partnerships UK have been involved in developing the overall PFI strategy, the enabling legislation, and in standardizing contracts to get the distribution of risk right and reduce bidding costs for both sides. And they are currently also helping to deliver specific projects.

Development

34. So I believe both our countries have much to gain from the development of public private partnerships.

35. But they, along with fiscal prudence and macroeconomic stability, are only part of the story. Central to South Africa's destiny is the future of the continent of which it is an integral part. I would like to pay tribute to the achievements of the South African government in using country's economic prestige and the moral force of a government which has triumphed in the struggle for freedom and for reconciliation, to help resolve conflicts; to find paths towards peace; to give development a chance to work.

36. In 2001, Africa's leaders, through the New Partnership for Africa's Development (NEPAD), gave a commitment to Africans and the international community to place Africa on a path of sustainable growth, and South Africa continues to play a critical and widely appreciated role in promoting stability and good governance through its leadership in NEPAD. In the UK, we recognise that NEPAD is an important step forward, and we will continue to give vigorous support to governments improving their public financial management and accountability.

37. This week I have visited several African countries to discuss how we advance sustainable growth, and especially how we are to meet the Millennium Development Goals for poverty reduction. We recognize that alongside trade and private investment, meeting the Millennium Development Goals will require a significant increase in development assistance. That is why the UK has proposed an International Finance Facility.

38. The Finance Facility would use long-term, binding commitments from the richest countries, some of them already in place, to leverage additional money from the international capital markets and enable us to increase development aid for the years to 2015 from $50 billion a year to $100 billion per year - the amount necessary to meet the Millennium Development Goals.

39. In return, each country drawing on the fund would need to have in place policies to guarantee the money would be used effectively - tackling corruption, ensuring stability and publishing clear, costed poverty reduction strategies.

40. The UK stands ready to provide this long-term commitment, but we cannot make progress alone. We seek to build support across the entire international community. The voice of South Africa, as the leading economy in Africa and an influential partner of many countries in this continent, in the Commonwealth and in the wider developing world, is a voice that must be heard.

41. So I would like to emphasise my appreciation and the Chancellor's appreciation for the support which Trevor Manuel has given to the proposal. Last November at the G20 Summit in Delhi I had the opportunity to discuss the International Financing Facility with him in detail, and the engagement from the South African government has proved very valuable as we went on to refine and build support for the Facility.

42. I was very glad to be able to meet with Trevor Manuel and to thank him for South Africa's continuing support. We need your experience and your ideas to make the Facility work effectively - and we need you to keep up the pressure on donor countries, especially the G7 and G8, to make commitments to support it.

43. The UK and South Africa, for all our differences in geography, economics, and society, have much to share with one another. We have a common concern to safeguard the progress we have made in securing economic stability and growth; and to achieve even greater benefits - public and private - through the Doha trade round. We are working together to address the urgent needs of developing countries through the International Financing Facility. Above all, we have a shared commitment to ensure our citizens have access to excellent public services - healthcare, education and infrastructure - to face the challenges of the 21st century with confidence. That is what this Trade Summit is about - I would like to wish you every success with your efforts, and I am looking forward to our continuing work together.

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