Address today’s challenges to build a sustainable long-term PPP strategy for Africa
Nov. 18, 2021
For over a decade now, many African governments and multilateral bodies have invested immensely in building public-private partnership (PPP) frameworks to provide a conducive environment for the implementation of projects. This huge investment in time and resources notwithstanding, the progress made so far is not commensurate with the level of investment.
From my interaction with some of the PPP officials in the East African region, practical PPP experience is still a bottleneck in the quest to drive good PPP projects. Unless there is a strong commitment from top leadership, it will take some time before we see good PPP projects being implemented.
However, since 2019, we have made remarkable progress in identifying and training infrastructure champions across the African continent. The Africa Project Finance Program initiative is building a pool of infrastructure finance and PPP experts who will influence the delivery of sustainable infrastructure financing solutions in Africa
Additionally, we can attribute the slow progress to an inappropriate PPP strategy that was adopted. The reality is that many governments embraced a PPP strategy that is not abreast with the inherent challenges and limitations that the African market faces. The strategy adopted by many countries has been influenced by the “essential” features of PPP contracts advocated by many PPP reference guides and PPP experts.
Some of these “essential” features I consider to be myths. These include:
*PPP contracts should be used to deliver large infrastructure projects
*The private party has to bear significant risks in the PPP project
*The tenor of the PPP contract has to be long
*The private party has to contribute a significant portion if not all the financing requirements of the project
One element that I do consider essential is the value for money requirement.
This is very key if all African governments are to implement sustainable PPPs. My view is that procurement by PPP should only be used to finance infrastructure projects where there is evidence that it will generate more economic and social benefits than if the public investment route was chosen.
Nevertheless, in evaluating the value for money requirement, we need to understand the implications of the continent’s challenges.
What are the implications of Africa’s challenges and how can countries address them right from the beginning to get more sustainable PPPs to market?
Undeveloped financial markets
The local and regional African financial markets are not advanced and are hesitant to lend for long tenors, especially for infrastructure projects. This forces private sector operators to pursue international financing options, which are not necessarily affordable. High financing costs will ultimately be transferred to the public through high user fees and/or taxes.
For Africa to implement sustainable PPP projects in the long term, there is a need to stimulate the local financial market through appropriate regulatory and support mechanisms to unlock more sustainable financing for infrastructure projects.
The real and perceived risks of the African continent pose a serious challenge to its quest to implement sustainable PPPs. Government officials need to be aware of this threat and ensure they put in place appropriate government support mechanisms that strike an optimal balance between bankability and value for money. As more countries push to implement their first-generation PPPs, it’s important that all efforts are geared towards ensuring their successful implementation. This will build a case and help attract more investment at relatively lower cost in future.
Risk allocation regime
Aggressive negotiation and allocation of risks where the private party is expected to bear almost all the risks in a PPP project has continued to push away private sector participation in PPP projects. Governments in Africa should strive to ensure optimal allocation of risk especially and embed the appropriate government support mechanisms—especially if the country is implementing its pioneer PPP projects. At this stage, there is need for a deliberate effort to entice the private sector to work with governments in delivering infrastructure projects.
Reasonable and achievable project pipelines
Governments should conduct a thorough infrastructure assessment that will guide the development of a national infrastructure strategy that will guide the implementation of projects. Some of the countries have lined up ambitious project pipelines that they can hardly implement. With no proven track record, commitment, and experience in driving PPP projects, unless efficient government support mechanisms are in place, raising financing for those projects will be very expensive if not unachievable.
Immediate focus should be channeled towards identifying and implementing relatively smaller, climate-and technology-smart and impactful projects with a long-term focus on building the experience and track record to manage large infrastructure projects.
In conclusion, the long-term success of infrastructure PPP projects is dependent on the mechanisms that African governments put in place now to address the inherent challenges that the continent faces in attracting sustainable finance. There is need to have a long-term view and an appreciation that, if the right mechanisms are put in place now, it will be easier to raise sustainable financing in future.
Courtesy: World Bank Blogs