MOST thinking South Africans are justifiably cynical about public-private partnerships. Even before the latest revelations in the Gauteng e-tolling saga, it was clear that the concept — as understood in South Africa — was little more than a euphemism for a process that saw public assets (or their usufruct) diverted to officials or African National Congress (ANC) cronies.
The idea that, by combining access to capital, state resources and entrepreneurship, it is possible to arrive at a whole that is greater than the sum of its parts has long been forgotten as the kleptocracy we have come to recognise as the defining feature of the South African state has flourished.
Other, admittedly more developed, economies have been adept at bringing together resources under the control of the state with capacity that is more commonly available to the private sector. There are several models, and assuming what is sought produces the best outcome for the country as a whole, rather than for the managers, or even for the fiscus, the choice will take account of who carries the cost, how best to manage the funding and how to optimise the benefits.
As alien as this may sound to South Africans, it is not entirely foreign to the way we thought about prospective private enterprise-state joint ventures in the past. In the late 1990s, Steve Mulholland mooted the idea of the country’s JSE-listed companies raising a fund that could be used to pay for infrastructure and develop capacity. At much the same time, the Western Cape government looked at some of the less productive assets nominally under its control and sought ways to unlock their value — without engaging in outright disposals (where regulatory impediments had the potential of tying up the process indefinitely).
Flexibility, and the ability to make projects work without unnecessary red tape, would seem to be a prerequisite (as it is clear that South Africa’s regulatory environment does little to minimise the risk of public assets vanishing into private pockets).
A recent trip to Hong Kong revealed a model that could have real value here, where the state owns land with commercial or industrial potential but lacks the means, on its own, to optimise its full value.
The project, called Cyberport, was developed over the past 12 years on a 24ha site on the quiet southern part of Hong Kong Island. This means that while it is a little distance from the central business district, in reality it is no more than a 15-minute ($8) taxi ride from town. The land had residential as well as commercial value and this imbued it with attributes peculiarly attractive to commercial developers. Residential property in Hong Kong is among the most expensive in the world, a function as much of the apparent land shortage as the wealth of the inhabitants (and that of the mainland Chinese seeking a toehold in the Special Administrative Region).
The Hong Kong government used the sale of more than 2,800 residential units to bankroll the office development: outright sales of the apartments in the Cyberport high-rise buildings provided the funding for the capital costs for the commercial and residential construction, with the profits shared by the government and its development partner.
While Cyberport was conceived as a hothouse melting-pot environment aimed at attracting businesses clustered around digital industries, it was also intended to be a stand-alone campus, given its distance from the central business district.
In addition to the commercial blocks (totalling 100,000m²), there is an extensive shopping precinct, The Arcade, covering 27,000m², to meet the needs of the residents and the 5,000 employees of the campus. There is also a 170-room, five-star hotel with occupancies close enough to 100% to suggest the enterprises in Cyberport draw on an extensive nonresident network of contractors and clients. Ten years into the project, Cyberport has four low-density, environmentally friendly office blocks, all designed to meet certain basic infrastructural specifications. These include a 10 gigabit per second (Gbps) fibreoptic network (to be upgraded to 40Gbps), state-of-the-art telecommunications, edit suites, auditoriums and conference facilities.
Tenants can occupy space as small as two desks (at a cost, all in, of $250 a desk a month), known as SmartSpace, or an entire building.
Specialist enterprises, such as the audio-visual studios and the film editing facilities, can rent out time to other businesses on the campus that have an occasional call for such equipment, or simply for the technical competence. The campus has 105 office tenants at present, in addition to those using the facilities on an ad hoc basis. About 40% of the companies are foreign, mainly from the US and Europe. As for the businesses themselves, about half are large firms, while the remainder are small and medium enterprises (SMEs), with a significant percentage (20% at present) in the start-up phase.
All of this is part of the Hong Kong government’s strategy for Cyberport: it wanted the campus to have continuing relevance to the region’s economy, which is strongly grounded in service industries. Accordingly, it has sought to develop a new technologies platform.
This is part of the reason for the creation of the SmartSpace: it makes Cyberport ideal for edgier, high-risk, high-reward start-ups in digital entertainment, specialised software and gaming, many of which seek the flexibility of month-to-month rentals, easy expansion (and contraction) arrangements, and serviced offices with shared receptionist facilities.
To further ensure Hong Kong’s access to, and share of, this growing segment, the government created an "incubation" programme in 2005 to support the development of start-ups and SMEs.
Cyberport launched its self-funded version of the arrangement in February last year, with a view to promoting entrepreneurship for approved applicants whose focus fits in with the alignment of the technology industries.
Essentially, this means young entrepreneurs with a good idea in the digital field can apply to set up their operations in Cyberport and receive as a grant the use of space and facilities for a limited period, typically two years, while their project gains traction.
So far, more than 180 companies have been admitted to the programme, and present arrangements allow for about 25 a year. There is also a Cyberport Creative Micro Fund available to assist with seed money, as well as infrastructure that sparks creative business ideas and provides entrepreneurial training.
Aware of the need to reach into mainland China (a commercial as well as a political imperative), the Cyberport setup includes a collaboration centre whose function is to assist companies tenanted on the campus to enter mainland China — initially via Shanghai, but with plans to add Beijing and Ghuangzhou to the network. Cyberport now has a representative office in Shanghai, which also facilitates partnership and alliances between Hong Kong’s information technology SMEs and global enterprises.
Cyberport is wholly owned by the Hong Kong government.
Through the partnership with the developers (who have now exited from the joint venture), it has acquired a valuable business site whose revenues are directed to developing and enhancing the region’s digital capability.
No taxpayers’ funds were used in the creation of this self-sustaining operation, which is far more than a real-estate enterprise.
On the contrary, the operation is now cash-positive and in a position to make its own contribution to the fiscus — a concept entirely beyond the wildest imaginings of most South Africans.