Embedding Graduate-Owned SMMEs in Infrastructure Delivery Through PPP Reform: A Pathway for Inclusive Economic Participation

Originally written: 27 September 2025

1. Introduction: Repositioning PPPs for Inclusive Growth

South Africa’s infrastructure ambitions, anchored in the National Development Plan (NDP) and the Medium Term Development Plan (2024-2029), as well as Infrastructure South Africa’s investment strategy, require more than capital mobilisation. They demand institutional innovation that links infrastructure investment to inclusive enterprise development and long-term delivery resilience.

The Medium Term Development Plan commits over R1.2 trillion to public infrastructure investment, with a strong emphasis on enabling private sector participation through revised Public Private Partnership (PPP) regulations and blended financing models. These reforms aim to unlock investment in strategic infrastructure sectors, including energy, water, transport, and telecommunications, as well as social infrastructure that expands access to essential services and supports employment creation.

The Strategic Plan of the Department of Public Works and Infrastructure reinforces this agenda by prioritising high-impact projects, tightening cost controls, and improving delivery efficiency. To address funding constraints, the department is advancing large-scale projects through PPP, allocating R200 million annually for project preparation, and leveraging programmes such as Adopt a Municipality to strengthen municipal infrastructure resilience. The Expanded Public Works Programme targets five million work opportunities over the medium term, linking infrastructure execution to economic recovery.

The National Infrastructure Plan 2050 provides the long-range foundation for inclusive growth. Developed by Infrastructure South Africa, it translates the objectives of the National Development Plan into actionable steps and intermediate outcomes. It identifies infrastructure investment as a critical driver of transformation, reducing spatial inequality, improving competitiveness, and supporting employment-intensive sectors. The plan estimates that achieving these development objectives will require more than R6 trillion in infrastructure investment between 2016 and 2040, with energy and transport accounting for over 70 per cent of this spend. It also highlights institutional weaknesses and delivery gaps, calling for stronger systems, integrated planning, and targeted course correction.

Strategically reformed PPPs offer a mechanism to attract private capital, share financial risk, and embed inclusive enterprise participation. This includes activating graduate-owned small and medium enterprises within construction ecosystems. Infrastructure South Africa’s pipeline of more than R300 billion in priority projects provides a tangible platform for this shift, linking infrastructure investment to skills development, youth employment, and enterprise growth.

2. Sectoral Context: Infrastructure Delivery Constraints

A range of institutional reviews and diagnostic reports, including those from the Government Technical Advisory Centre (GTAC), the Development Bank of Southern Africa (DBSA), and Infrastructure South Africa (ISA), have highlighted persistent weaknesses in South Africa’s infrastructure delivery ecosystem. These constraints span planning, procurement, and execution.

The Framework for Infrastructure Delivery and Procurement Management (FIDPM) provides a structured system for infrastructure delivery, clarifying the processes of planning and budgeting, supply chain management, and asset management. It replaced the earlier Standard for Infrastructure Procurement and Delivery Management (SIPDM), strengthening governance through gateway reviews, lifecycle costing, and alignment with public finance legislation.

Through FIDPM, institutional performance can be assessed and strengthened. It enables targeted diagnostics and supports the design of coherent, system‑based solutions to improve project outcomes.

Key delivery challenges include:

• Disjointed project planning and development: Infrastructure initiatives are often poorly conceptualised, with limited time allocated to preparation. Interdependencies between planning, construction, and operations are seldom considered, resulting in underdeveloped projects that fail to meet user needs or align with strategic outcomes.
• Subjective and inconsistent project selection: The absence of standardised criteria for prioritisation leads to fragmented pipelines and weak alignment with national development goals. Programmatic approaches that maximise return on investment are rarely adopted.
• Weak life cycle costing and sustainability integration: Planning processes seldom account for full life cycle costs. Environmental and social sustainability considerations are treated as compliance items rather than embedded design principles.
• Misaligned procurement systems: Public sector supply chain management often treats infrastructure procurement as a general administrative function rather than a strategic delivery mechanism. This misplacement within financial processes undermines project outcomes and delays execution.
• Compliance-driven procurement culture: SCM units frequently prioritise rule adherence over delivery logic. Procurement is centrally and remotely controlled, with limited responsiveness to project-specific needs and delivery imperatives.
• Inappropriate risk allocation: Risks inherent to infrastructure delivery are poorly mitigated. Public entities often absorb disproportionate risk due to weak negotiation capacity and unclear delivery roles.
• Fragmented institutional coordination: Roles and responsibilities across departments and implementing agents are often duplicated or undefined. Consultation between public and private actors lacks coherence, delaying decisions and weakening accountability.
• Technical capacity constraints: Many institutions lack the in-house expertise to plan, specify, procure, and oversee infrastructure projects. Reliance on external service providers is widespread but often uncoordinated and insufficiently integrated.

These constraints underscore the urgency of reforming PPP frameworks to embed agile, delivery-aligned SMMEs into infrastructure ecosystems. Graduate-owned SMMEs offer technical responsiveness, local insight, and a pathway to inclusive growth. Their strategic integration can strengthen institutional resilience, unlock latent delivery capacity, and improve execution across the infrastructure value chain

2.1 Budget Underspending as an Indicator of Delivery System Weakness

Recent infrastructure data reveals that budget underspending is not a financial anomaly—it is a direct indicator of systemic delivery constraints. According to GTAC (2025), over R80.5 billion was underspent between 2021/22 and 2023/24, primarily by state-owned companies (SOCs), provincial governments, and municipalities. This accounted for 11.3% of total infrastructure budgets over the same period. Given that over 80% of infrastructure spending occurs at subnational and SOC levels, this trend reflects institutional fragility in planning, procurement, and execution.

Findings from the 2024 IEOM Conference study further expose the operational consequences of underspending. Respondents identified the following as key challenges:

• Reduced infrastructure quality due to constrained or delayed expenditure
• Inefficient utilisation of allocated funds, with budgets returned or misaligned
• Limited innovation, as fiscal constraints discourage new approaches
• Decreased employment opportunities in the construction sector
• Inadequate training and capacity building for infrastructure personnel
• Inconsistent budget allocation across projects, disrupting continuity
• Reduced scope and ambition of infrastructure programmes
• Erosion of investor interest and public trust in infrastructure delivery
• Delays in project completion due to procurement and execution bottlenecks
• Deferred maintenance, accelerating asset deterioration

These outcomes expose the operational depth of South Africa’s infrastructure delivery constraints. Budget underspending reflects the inability to convert fiscal allocations into tangible outcomes, pointing to persistent gaps in institutional capacity, technical competence, and execution efficiency.

Addressing these weaknesses requires more than regulatory reform or increased funding. It demands a shift in delivery architecture—one that activates latent capacity, strengthens execution systems, and embeds responsive enterprise models. The integration of graduate-owned SMMEs into PPP frameworks offers a targeted response. These enterprises bring agility, technical depth, and local responsiveness, and can help absorb delivery pressure, improve execution, and support innovation, particularly in contexts where public institutions struggle to spend effectively.

3. PPPs as a Mechanism for Infrastructure Investment and Capacity Building

Public Private Partnerships are structured collaborations between government entities and private sector actors that mobilise private finance, expertise, and operational capacity for public infrastructure projects. They improve budget efficiency, share delivery risks, and accelerate execution timelines while maintaining public oversight (Hagerman, 2012; Mercer et al., 2018).

Globally, PPPs have bridged infrastructure investment gaps, especially in developing countries. Since the 1980s, over 6,600 PPP projects have been implemented across low- and middle-income nations, accounting for roughly 10% of annual infrastructure investment (World Bank, 2017). In Africa, 662 PPP-aligned projects have attracted over $101.7 billion in private investment, primarily in transport, ICT, and energy (UNECA, 2025). Yet, infrastructure funding gaps remain high—estimated at $130–170 billion annually (AUC/OECD, 2022).

Beyond financing and execution, PPPs offer a strategic pathway for skills transfer, institutional capacity building, and labour market activation. Private partners play a central role in addressing the skills gap through training, apprenticeships, and competency development (Dullah Omar Institute, 2021). This is particularly relevant for graduate-owned SMMEs, which can be embedded as junior specialists or subcontractors, gaining on-the-job experience and mentorship from established contractors.

Dedicated PPP units are critical enablers of this architecture. In the Asia-Pacific region, over 70% of PPP units support early-stage project development, though fewer are involved in contract management. Their functions evolve as PPP systems mature and typically include policy formulation, standardisation, coordination, capacity building, promotion, technical support, and quality control (Almeida et al., 2020). These units also act as gatekeepers, ensuring project proposals meet quality standards and advising on pipeline inclusion.

PPP programmes and projects can be aligned with the Sustainable Development Goals (SDGs). SDG 8, which promotes inclusive economic growth and decent work, is especially relevant. At the project level, PPPs address infrastructure gaps while creating employment. At the programme level, they generate specialised jobs and can be structured to encourage SMME participation. For example, outsourcing road construction and maintenance to local firms has created jobs while improving infrastructure quality (UNESCAP, 2017).

To realise these benefits, continuous performance monitoring, transparent management, and robust legal frameworks are essential. Weak project design, poor oversight, or political instability can lead to disputes, financial losses, and early contract termination (UNESCAP, 2017).

As African governments pursue regional integration and sustainable finance, PPPs remain a critical tool for aligning infrastructure delivery with inclusive development goals. Unlocking their full potential will require strengthened regulatory frameworks, improved project preparation, and the integration of capacity-building clauses that support enterprise development and skills transfer.

4. PPP Reform: Unlocking Institutional Capital and Delivery Efficiency

South Africa’s PPP framework is governed by Treasury Regulation 16 under the Public Finance Management Act (PFMA), 1999. This regulation enables national and provincial government institutions to enter into PPP agreements, while municipal PPPs are regulated separately under the Municipal Finance Management Act (MFMA), 2003 and the Municipal Systems Act, 2000. A dedicated PPP Manual for municipalities is expected to improve coherence across spheres of government.

At the national and provincial level, the PPP Manual and Standardised PPP Provisions issued by National Treasury provide detailed guidance across the PPP lifecycle—from feasibility and procurement to contract management. These are issued as PPP Practice Notes under section 76(4)(g) of the PFMA and apply to departments, constitutional institutions, and public entities listed in Schedules 3A to 3D. The Government Technical Advisory Centre (GTAC), through its Transaction Advisory Services (TAS) and PPP Unit, plays a central role in supporting project planning, procurement structuring, and implementation monitoring. The unit’s mandate includes feasibility analysis, legal and financial advisory, and post-procurement support where required.

The Infrastructure Investment Handbook (ISA, 2024) confirms that PPPs are central to South Africa’s strategy for mobilising private sector investment, technical expertise, and operational capacity. The government has prioritised improving the ease of investing in PPPs to address the infrastructure funding gap and reduce pressure on public finances. While there has been a modest increase in PPP projects reaching financial closure, particularly in 2012, 2017, and again in 2023, the overall pipeline remains thin and uneven. This underscores the need for structural reform to improve project origination, bankability, and execution capacity.

Investment modalities include competitive bidding, blended finance through development finance institutions, and participation via the Infrastructure Fund. These mechanisms offer flexibility for different investor profiles and project types. Importantly, South Africa’s PPP programme embeds inclusive development objectives. Secondary goals such as employment creation, partnerships with SMMEs, and the use of local content are integral to the investment logic. These priorities reflect a deliberate shift toward infrastructure delivery that is not only efficient and bankable but also socially responsive and economically activating.

4.1 Reform Measures and Strategic Levers

The 2025 amendments to Treasury Regulation 16 mark a decisive shift in South Africa’s PPP framework. After nearly 15 years of regulatory stasis, these reforms respond to the country’s infrastructure deficit, constrained public finances, and the need to mobilise private sector capital and expertise. The amendments aim to modernise PPP delivery, improve fiscal governance, and create more favourable conditions for private sector participation.

Amendments to Treasury Regulation 16: Gazetted in February 2025 and effective from 1 June 2025, these amendments implement key recommendations from the PPP framework review. They introduce simplified approval processes, enhanced fiscal and risk oversight, a formal framework for unsolicited proposals (USPs), improved procurement transparency, and strengthened contract compliance. Collectively, these changes are expected to accelerate PPP execution, improve investor confidence, and enhance delivery efficiency.

Reconfigured project appraisal and financing: The Budget Facility for Infrastructure has been restructured into centralised gateways for proposals valued at R1 billion and above. Proposals will now be considered quarterly, with expanded eligibility to include pre-feasibility submissions, blended finance initiatives, and PSP-aligned interventions. Fiscal support may take the form of guarantees, appropriations, PPPs, or other instruments. A circular detailing eligibility criteria and timelines has been released.

Formal framework for unsolicited proposals (USPs): A structured process now governs USPs submitted by private sector proponents. Proposals must demonstrate innovation, align with strategic priorities, and support the core functions of the receiving institution. Proponents are responsible for feasibility studies and may recover development costs if not selected, subject to conditions outlined in Regulation 16.14.4. Competitive bidding remains mandatory to uphold constitutional procurement principles.

Establishment of the PPP Advisory Unit: A dedicated PPP Advisory Unit has been established to support institutions throughout the PPP lifecycle, regardless of project value. The unit provides technical guidance, reviews procurement documentation, and advises on compliance and risk management. This centralised support function is designed to improve project quality, accelerate timelines, and ensure consistency across institutions.

Continued rigour for larger projects: Projects exceeding R2 billion remain subject to the full Treasury approval process, including TA IIA and IIB. These projects benefit from enhanced advisory support and the new USP framework but continue to undergo detailed scrutiny to ensure value-for-money and fiscal sustainability.

Municipal regulation alignment: Municipal PPPs remain governed by Regulation 309 under the MFMA, which is undergoing a separate amendment process. While the PPP Advisory Unit is mandated to support all spheres of government, the delay in finalising municipal regulations may create temporary divergence in regulatory treatment.

Distinction from PSP frameworks: The government is concurrently developing private sector participation (PSP) frameworks for state-owned entities in strategic sectors such as energy, ports, and rail. These frameworks differ from PPPs in their objectives, scope, and mechanisms. For example, PSPs in energy may focus on independent power producers and transmission investment, while transport PSPs may involve concessions for freight rail and port operations. Unlike PPPs under Regulation 16, PSPs are driven by sector-specific policies and address the unique operational and financial challenges faced by SOEs.

Reforming government borrowing for infrastructure: National Treasury is expanding its borrowing instruments to include infrastructure bonds, bilateral loans, and concessional funding from multilateral development banks. The first infrastructure bond is expected in 2025/26. These innovations aim to diversify funding sources and strengthen South Africa’s infrastructure finance ecosystem.

5. PPP Process Overview and Institutional Architecture

South Africa’s PPP process is governed by Treasury Regulation 16 under the PFMA and operationalised through the National Treasury PPP Manual. The ISA 2024 Infrastructure Investment Handbook reaffirms this structure and highlights the importance of regulatory clarity, technical capacity, and investor confidence. The process consists of four formal stages as outlined in Figure 01 below, each requiring specific approvals and offering distinct opportunities for strategic alignment.

Stage 1: Inception – The sponsor registers the project as a PPP with National Treasury and appoints a Transaction Advisor. This stage establishes the delivery logic, strategic intent, and institutional commitment. The Transaction Advisor plays a critical role in shaping the feasibility study, procurement strategy, and risk allocation framework.

Stage 2: Feasibility Study – The sponsor develops a feasibility study to determine whether PPP or conventional procurement is the most appropriate delivery method. The study must demonstrate affordability, value for money, and substantial risk transfer to the private party. Treasury Approval I (TA I) is required before proceeding. If assumptions change materially before final contracting, the feasibility study must be revised and resubmitted.

Stage 3: PPP Procurement – Upon TA I approval, the sponsor prepares bid documentation and the draft PPP agreement, which must be submitted for Treasury Approval IIA. Once approved, the opportunity is advertised, and bids are evaluated. Before appointing a preferred bidder, the sponsor must submit a value-for-money report and risk transfer analysis for Treasury Approval IIB. The procurement process must comply with constitutional principles of fairness, transparency, and competitiveness, and must reflect preferential procurement policies, including BEE and SMME advancement.

Stage 4: PPP Agreement and Management Plan – After TA IIB, the sponsor negotiates with the preferred bidder and finalises the PPP Agreement and Management Plan. Treasury Approval III is granted once the agreement meets affordability, value-for-money, and risk transfer criteria, and once a satisfactory due diligence and management plan is in place. The sponsor is then responsible for implementing, managing, enforcing, and reporting on the PPP agreement throughout its lifecycle.

This structured process ensures that PPPs are rigorously assessed, transparently procured, and effectively managed. It also provides multiple entry points for embedding inclusive development objectives, specifically, the structured participation of graduate-owned SMMEs in infrastructure delivery. These objectives will be operationalised through the innovative systems GRIT-FIT and IPMS, designed by ZNP Solutions, our strategic partner at Goshen.

Figure 01: Public-Private Partnerships

6. Proposed Frameworks for Embedding Graduates in PPP Delivery

To support inclusive infrastructure delivery, we are proposing two institutional frameworks, the GRIT-FIT and IPMS, designed to enable the structured participation of unemployed graduates as enterprise owners across all four phases of the PPP lifecycle.

• GRIT-FIT is being designed to activate graduate-owned SMMEs in construction-related opportunities across core infrastructure sectors such as energy, transport, and public works. It supports enterprise readiness, onboarding, and post-contract resilience—particularly during the Inception and Feasibility stages. A key multiplier effect is embedded: participating graduate-owned enterprises must employ at least 90% unemployed youth, directly linking infrastructure investment to broader employment impact.
• IPMS (Inclusive Procurement Management System) is being designed to strengthen procurement and agreement management processes. It aims to streamline participation through dynamic compliance tracking, promote accountability via auditable records and feedback loops, and drive sustainability by monitoring inclusion metrics across the PPP lifecycle.

These frameworks remain in the conceptualisation phase and are not being publicly released. Instead, they are being engaged through targeted stakeholder dialogues to test alignment with national mandates, institutional platforms, and delivery systems.

7. Conclusion

The 2025 reforms to Treasury Regulation 16 have laid the groundwork for a more responsive and inclusive PPP environment. With streamlined approvals, enhanced oversight, and clearer institutional architecture, the framework now offers sponsors and delivery partners a credible pathway to align infrastructure investment with national development priorities.

This moment calls for more than procedural compliance—it requires delivery systems that are capable of absorbing new entrants, generating employment, and supporting inclusive growth. South Africa’s infrastructure ambitions must now be matched by mechanisms that translate policy into measurable outcomes, particularly in sectors where construction offers scalable opportunities for enterprise activation and job creation.

GRIT-FIT and IPMS are designed for scalability across municipal, provincial, and national tiers, and are adaptable for regional integration, particularly in support of initiatives such as the Ubuntu Legacy Infrastructure Initiative and the African Continental Free Trade Area (AfCFTA) Phase II protocols on investment and youth participation. By embedding unemployed graduates into infrastructure value chains and linking enterprise activation to inclusive procurement oversight, they offer a delivery-oriented response to the continent’s infrastructure and employment challenges.

We welcome collaboration from government departments, private sector partners, academic institutions, and civil society actors who are committed to transforming infrastructure into a platform for inclusive growth, regional connectivity, and enterprise activation. This is a shared opportunity to shape delivery systems that reflect the full potential of South Africa’s and Africa’s human capital.