Collaborating to strengthen public sector financial functions

Dec 5, 2024 12:00:00 AM

"One example of effective collaboration is the partnership between South African banks and the Department of Home Affairs. The integration of the banks’ technical capabilities and branch networks allowed Home Affairs to address backlogs and improve service delivery significantly."

Collaborating to strengthen public sector financial functions

By Rowan de Klerk

Dr. Darion Barclay, Head of the Gauteng Department of Cooperative Governance and Traditional Affairs, recently emphasised that “service delivery improvements will only be possible when local governments prioritise transparency, effective governance, and the needs of the people they serve. Municipalities need capable, accountable, and citizen-centric leadership committed to fulfilling their mandates and improving the lives of South Africans”.

While these improvements are necessary, they will take time to materialise. An alternative solution to bolster financial management is to collaborate with trusted private-sector partners. Strategic outsourcing of specific financial functions to entities with proven expertise in both corporate and public finance can help public institutions enhance their financial oversight without compromising their operational control. The goal is to leverage the efficiencies of the private sector while upholding accountability in public financial management.

Why outsourcing must be done thoughtfully

Before fully embracing this approach, we must acknowledge its potential pitfalls. Marianna Mazzucato, in her insightful book The Big Con, warns that excessive dependence on private consulting firms can “infantilise” governments, stripping them of their technical capabilities and leading to a loss of independence. When consulting firms hold the reins, decision-making often shifts away from the institution’s leadership, ultimately stifling innovation and internal growth.

What we advocate for, instead, is a hybrid approach that combines the strengths of both sectors. The African Development Bank supports this view, stating that “Public-Private Partnerships (PPPs) can offer complementary sources of finance … while potentially also delivering higher quality and efficiency in public assets and services”. This model encourages skill transfer and capacity building within the public sector, ensuring that expertise is developed internally even as external partners provide valuable support.

Real-world examples of public-private collaboration

One example of effective collaboration is the partnership between South African banks and the Department of Home Affairs. The integration of the banks’ technical capabilities and branch networks allowed Home Affairs to address backlogs and improve service delivery significantly. This success story shows how public-private partnerships can solve complex challenges without diminishing the public sector’s role.

A more targeted example is the South African Revenue Service (SARS), which has worked with private audit firms to elevate tax compliance and governance standards. This collaboration brought in external expertise to tighten fiscal controls, address non-compliance, and boost tax revenue collection, demonstrating how partnerships can enhance both efficiency and accountability within critical public sector functions.

Financial expertise and sustainability: A business imperative

Beyond immediate efficiency gains, enhancing financial management through such collaborations can open doors for sustainability-linked financing. With the growing emphasis on environmental, social, and governance (ESG) principles, robust financial governance plays a crucial role in attracting sustainable investment. Improving financial transparency and accountability in the public sector will position South Africa as a desirable destination for foreign direct investment, driving long-term economic growth.

A strategic focus on ESG metrics is particularly relevant in today’s global market, where investors are increasingly prioritising responsible and sustainable business practices. By aligning public sector financial controls with ESG principles, South Africa can tap into a broader pool of international capital aimed at funding initiatives that drive positive environmental and social outcomes.

A balanced approach to public sector collaboration

These examples clearly demonstrate that the public and private sectors can work together to solve financial challenges more effectively. By embracing a balanced approach—where the public sector selectively outsources to the right firms and retains its core competencies—we can create a system that promotes financial accountability without compromising the autonomy of public institutions.

Instead of framing it as “privatisation,” we should consider these partnerships as opportunities to collaborate and innovate. The aim is to create a public sector that is both agile and resilient and that harnesses the expertise of private entities to strengthen its financial operations and service delivery.

Ultimately, it’s about finding the right equilibrium: fostering partnerships that enhance accountability, sustain internal skills and ensure long-term economic and social impact. By adopting this collaborative strategy, South Africa can progress toward a future of more effective governance, improved financial oversight and a greater level of trust between public institutions and the communities they serve.

Rowan de Klerk is a seasoned CEO and CFO with a strong commercial and strategic background and over 35 years of experience working with both large corporations and mid-sized entrepreneurial businesses. He is the founder and CEO of The CFO Centre South Africa which is part of a Global Financial Leadership Practice.