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Private Public Partnerships embraced by government and business

Private Public Partnerships embraced by government and business

By John Davie, Chairman of Altra Capital and Visiting Professor and course leader for the Advanced Diploma in PPP at Guildhall Faculty of Business and Law, London Met University.

Public Private Partnerships were at the heart of the United Kingdom government’s revival of Great Britain’s public services. I was therefore delighted to share some of our global experience in PPP with some very capable people in Namibia at the end of last month. I am very happy that Namibia is considering its Public Private Partnership (PPP) agenda and the British government is supporting this. I enjoyed working with the PPP Unit, the Ministry of Finance, the Office of the Attorney General and several other organisations. This is the second PPP workshop this year that the British government has sponsored in cooperation with the Ministry of Finance. Right from the first morning delegates engaged in a some vigorous and well considered dialogue. Having worked with over 70 countries this impressed me, and I am not easily impressed!
But PPP is only one element of a broader economic policy and thorough assessment of the pros and cons of alternative procurement routes should always be at the start of any project. We discussed important aspects such as Value for Money (VfM) analysis, and why it should be used to compare PPP projects with traditional public sector procurement and financing. Another key point is that PPP should not be decided upon by government before careful analysis or that a business case will defend that decision. The project must stack up in all aspects and be deliverable no matter the form of financing.
Are the benefits of private finance worth the premium apparently paid compared to government’s borrowing cost? It rests on an important assumption: that government can sustainably fund projects from borrowing more cheaply than the private sector. Is this true? Most government do not know the real long term costs of what they provide. Where proper data are available PPP compares very favourably. And when properly structured they do.
PPPs have successfully delivered improved energy, water and sanitation, transport, education, healthcare and many more sectors. They mobilise private sector capital and expertise that would otherwise be far beyond the reach of governments, municipal and local authorities. For Namibia, PPP is a significant element in the government’s broader plan for infrastructure, services, local employment and business growth. Procurement decisions should be based on facts. PPP works best in essential public services; to services that directly improve people’s lives. Building new government offices, for example, often consume resources rather than provide better public services.
In the last two decades the use of PPP has transformed the delivery of public services and infrastructure around the world. Crucially, in PPP contracting authorities are not dealing with private sector parties that have money; rather, they are dealing with private sector parties that have the capacity to raise and to mobilise money. That means Namibia must become very attractive to outside funds. They come from capital markets – pension funds and insurance companies.
As a result of PPP successes, Namibia is in competition with around 120 countries for the same skills and funding: all these countries are looking at doing PPP are in competition for a limited international pool of advisors, capital and operators.
The government must enable conditions to attract investment and ensure long-term commitment to PPP among all stakeholder groups. Among these are political and economic stability, a competent PPP Task Force (which Namibia is developing), understanding the real costs of public sector activity, understanding which risks should be transferred, ability to produce output-based specifications, ability to negotiate and handle private sector companies in a sophisticated and thoughtful way and appropriate primary legislation. We looked at all of these.
Namibia’s PPP legislation is a work in progress. Testing Namibia’s legislation and institutional arrangements against other African jurisdictions would greatly strengthen and improve outcomes. A cardinal principle behind the PPP is that it is intended to transform government departments from being owners and operators of assets into purchasers of services from the private sector.
Being a smaller economy it is imperative that Namibia becomes very attractive if resources are to find the country appealing. Namibia is competing with places such as Vietnam, Canada, Peru, Belgium as well as with its immediate neighbours.
Above all PPP is outward looking. The PPP legislation must also be outward looking, which may be distinct from most domestic legislation.
PPP is no magic bullet for the public sector. As Robert Bain said when at S&P, “PPPs perform very well, but . . . there is a whole series of cards that need to be stacked up to get the full benefit”.

About The Author

Sanlam 2018 Annual Results

7 March 2019


Sanlam’s 2018 annual results provides testimony to its resilience amid challenging operating conditions and negative investment markets

Sanlam today announced its operational results for the 12 months ended 31 December 2018. The Group made significant progress in strategic execution during 2018. This included the acquisition of the remaining 53% stake in SAHAM Finances, the largest transaction concluded in the Group’s 100-year history, and the approval by Sanlam shareholders of a package of Broad-based Black Economic Empowerment (B-BBEE) transactions that will position the Group well for accelerated growth in its South African home market.

Operational results for 2018 included 14% growth in the value of new life insurance business (VNB) on a consistent economic basis and more than R2 billion in positive experience variances, testimony to Sanlam’s resilience in difficult times.

The Group relies on its federal operating model and diversified profile in dealing with the challenging operating environment, negative investment markets and volatile currencies. Management continues to focus on growing existing operations and extracting value from recent corporate transactions to drive enhanced future growth.

The negative investment market returns and higher interest rates in a number of markets where the Group operates had a negative impact on growth in operating earnings and some other key performance indicators. This was aggravated by weak economic growth in South Africa and Namibia and internal currency devaluations in Angola, Nigeria and Zimbabwe.

Substantial growth in Santam’s operating earnings (net result from financial services) and satisfactory growth by Sanlam Emerging Markets (SEM) and Sanlam Corporate offset softer contributions from Sanlam Personal Finance (SPF) and Sanlam Investment Group (SIG).

Key features of the 2018 annual results include:

Net result from financial services increased by 4% compared to the same period in 2017;

Net value of new covered business up 8% to R2 billion (up 14% on a consistent economic basis);

Net fund inflows of R42 billion compared to R37 billion in 2017;

Adjusted Return on Group Equity Value per share of 19.4% exceeded the target of 13.0%; and

Dividend per share of 312 cents, up 8%.

Sanlam Group Chief Executive Officer, Mr Ian Kirk said: “We are satisfied with our performance in a challenging operating environment. We will continue to focus on managing operations prudently and diligently executing on our strategy to deliver sustainable value to all our stakeholders. The integration of SAHAM Finances is progressing well. In addition, Sanlam shareholders approved the package of B-BBEE transactions, including an equity raising, at the extraordinary general meeting held on 12 December 2018. Our plan to implement these transactions this year remains on track.”

Sanlam Personal Finance (SPF) net result from financial services declined by 5%, largely due to the impact of new growth initiatives and dampened market conditions. Excluding the new initiatives, SPF’s contribution was 1% down on 2017 due to the major impact that the weak equity market performance in South Africa had on fund-based fee income.

SPF’s new business sales increased by 4%, an overall satisfactory result under challenging conditions. Sanlam Sky’s new business increased by an exceptional 71%. Strong growth of 13% in the traditional individual life channel was augmented by the Capitec Bank credit life new business recognised in the first half of 2018, and strong demand for the new Capitec Bank funeral product. The Recurring premium and Strategic Business Development business units also achieved strong growth of 20%, supported by the acquisition of BrightRock in 2017. Glacier new business grew marginally by 1%. Primary sales onto the Linked Investment Service Provider (LISP) platform improved by 5%, an acceptable result given the pressure on investor confidence in the mass affluent market. This was however, offset by lower sales of wrap funds and traditional life products.

The strong growth in new business volumes at Sanlam Sky had a major positive effect on SPF’s VNB growth, which increased by 7% (14% on a comparable basis).

Sanlam Emerging Markets (SEM) grew its net result from financial services by 14%. Excluding the impact of corporate activity, earnings were marginally up on 2017 (up 8% excluding the increased new business strain).

New business volumes at SEM increased by 20%. Namibia performed well, increasing new business volumes by 22% despite weak economic conditions. Both life and investment new business grew strongly. Botswana underperformed with the main detractor from new business growth being the investment line of business, which declined by 24%. This line of business is historically more volatile in nature.

The new business growth in the Rest of Africa portfolio was 68% largely due to corporate activity relating to SAHAM Finances, with the East Africa portfolio underperforming.

The Indian insurance businesses continued to perform well, achieving double-digit growth in both life and general insurance in local currency. The Malaysian businesses are finding some traction after a period of underperformance, increasing their overall new business contribution by 3%. New business production is not yet meeting expectations, but the mix of business improved at both businesses.

SEM’s VNB declined by 3% (up 6% on a consistent economic basis and excluding corporate activity). The relatively low growth on a comparable basis is largely attributable to the new business underperformance in East Africa.

Sanlam Investment Group’s (SIG) overall net result from financial services declined by 6%, attributable to lower performance fees at the third party asset manager in South Africa, administration costs incurred for system upgrades in the wealth management business and lower earnings from equity-backed financing transactions at Sanlam Specialised Finance. The other businesses did well to grow earnings, despite the pressure on funds under management due to lower investment markets.

New business volumes declined by 13% mainly due to market volatility and low investor confidence in South Africa. Institutional new inflows remained weak for the full year, while retail inflows also slowed down significantly after a more positive start to the year. The international businesses, UK, attracted strong new inflows (up 57%).

Sanlam Corporate’s net result from financial services increased by 4%, with the muted growth caused by a continuation of high group risk claims experience. Mortality and disability claims experience weakened further in the second half of the year, which is likely to require more rerating of premiums in 2019. The administration units turned profitable in 2018, a major achievement. The healthcare businesses reported satisfactory double-digit growth in earnings, while the Absa Consultants and Actuaries business made a pleasing contribution of R39 million.

New business volumes in life insurance more than doubled, reflecting an exceptional performance. Single premiums grew by 109%, while recurring premiums increased by a particularly satisfactory 56%.

The good growth in recurring and single premium business, combined with modelling improvements, supported a 64% (71% on a comparable economic basis) increase in the cluster’s VNB contribution.

Following a year of major catastrophe events in 2017, Santam experienced a relatively benign claims environment in 2018. Combined with acceptable growth in net earned premiums, it contributed to a 37% increase in gross result from financial services (41% after tax and non-controlling interest). The conventional insurance book achieved an underwriting margin of 9% in 2018 (6% in 2017).

As at 31 December 2018, discretionary capital amounted to a negative R3.7 billion before allowance for the planned B-BBEE share issuance. A number of capital management actions during 2018 affected the balance of available discretionary capital, including the US$1 billion (R13 billion) SAHAM Finances transaction. Cash proceeds from the B-BBEE share issuance will restore the discretionary capital portfolio to between R1 billion and R1.5 billion depending on the final issue price within the R74 to R86 price range approved by shareholders.

Looking forward, the Group said economic growth in South Africa would likely remain weak in the short to medium term future, and would continue to impact efforts to accelerate organic growth. The outlook for economic growth in other regions where the Group operates is more promising. Recent acquisitions such as the SAHAM transaction should also support operational performance going forward.

“We remain focused on executing our strategy. We are confident that we have the calibre of management and staff to prudently navigate the anticipated challenges going forward,” Mr Kirk concluded.

Details of the results for the 12 months ended 31 December 2018 are available at