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You are here:Home>>Strategic Research & Analysis>>Do We Have The Grips To Finance Africa’s Infrastructure Through PPPs?
Thursday, 09 May 2013 03:58

Do We Have The Grips To Finance Africa’s Infrastructure Through PPPs?

Written by Paul Frimpong
 Picture: Morgan Mbabazi Picture: Morgan Mbabazi

 

Africa has the potential to be the world’s leading destination of investments. Africa is ambitious to take its rightful position in the global economy. The stakes are high for Africa to control global trade and attract the largest portion of the world’s investment. But the story has always been thwarted one way or the other. The mystery behind it is very clear and starring us in the face. The challenge has always being the incident of poor infrastructure. Africa has the world’s least sufficient infrastructure capacity. This has made trade in Africa very difficult and expensive.

 

The world has identified Africa as the next best destination to do business, but is always hindered by poor infrastructure.  Economic efficiency is not harmonized due to difficulty in accessing African markets. Therefore, for Africa to realize its full potential, then a fully structured and sustainable infrastructure development is needed. Energy, water, sanitation, telecoms and transport have long being identified as a major setback to trade on the continent. Energy supply continues to be Africa’s largest infrastructure challenge with 30 countries experiencing frequent power outages with just over a third of Africa’s population having access to electricity. Poor infrastructure is costing each member country’s growth to reduce by 2percentage point each year and cut productivity by as much as 40%.

 

According to the World Bank, about $93 billion is needed annually to be able to fund Africa’s infrastructure for the next 10 years. Which is about 15 percent of the region’s GDP. About $60 billion would go to new projects and the rest would go into the maintenance of the existing ones. Infrastructure development and management is an aspect in which the efficient developments within a society rely heavily upon, and is the cornerstone for socio-economic development. The availability of infrastructure is of great importance in the realization of sustainable development desperately needed in Africa. Infrastructure development and management has become even more essential for Africa’s economic development and integration.

 

Governments are looking to public-private partnerships (PPPs) to radically improve infrastructure networks in their countries and enhance service delivery to their people. They are hoping that this development finance model — where the state shares risk and responsibility with private firms but ultimately retains control of assets — will improve services, while avoiding some of the pitfalls of privatization: unemployment, higher prices and corruption.

 

This is why Africa has identified the model of Public Private Partnerships (PPPs) in financing infrastructure. But the question asked is “do we have the necessary strategies in place to make this work in Africa, as we so desperately wants it”? I guess some individuals and institutions across the continent must answer this question.

 

What actually is PPP about? How do we make it work as effectively and efficiently on the continent? Just as infrastructure is needed and hence needed to be financed through this model; it is equally necessary to set the foundation right to make this work effectively and efficiently as possible.

 

Public–Private Partnerships (PPPs) simply describe arrangements between a government service or private business venture which is funded and operated through a partnership of government and one or more private sector companies. It actually describes a relationship in which public and private resources are blended to achieve a goal or set of goals judged to be mutually beneficial both to the private entity and to the public. PPP typically involves a contract between a public sector and a private party, in which the private party provides a public service or project and assumes substantial financial, technical and operational risk in the project. It is a deliberate attempt to establish a business relationship between a private-sector company and a government agency for the purpose of completing a project that will serve the public. That is a contractual agreements between a public agency or public-sector authority and a private-sector entity that allow for greater private participation in the delivery of public services, or in developing an environment that improves the quality of life for the general public. PPPs can be used to finance, build and operate projects such as public transportation networks, parks and convention centers, power as well as rails. Financing a project through a public-private partnership can allow a project to be completed sooner or make it a possibility in the first place.

 

The rationale for using a PPP arrangement instead of conventional public procurement rests on the proposition that, optimal risk sharing with the private partner delivers better value for money for the public sector and ultimately the end user. A typical PPP example would be an energy facility financed and constructed by a private developer and then leased to the energy authority. The private developer then acts as property owner, providing relevant logistics service while the energy facility itself provides energy services. This is not rocket science but, it is complex and it is the complexity of the interface between the public and private sector that has made it very challenging to get more PPPs work effectively in Africa. The case studies suggest that, PPPs are complex, demanding and time-consuming, but that, under the right conditions, and in the right sectors, they can offer significant benefits to government, the private sector and consumers.

 

While there is a great deal of talk about how the private sector could work with African governments to begin to roll back Africa’s huge infrastructural gap, very little in terms of regulation is actually happening. Finance, we are told, is not the problem; the problem is a lack of trust between the private sector and governments. So how do we bridge that gap? How do we make this work in Africa?

 

Transparency is very essential in the structuring of PPPs. This means that both parties must be honest as possible to disclose all information, necessary to make the partnership sustainable. Leaders need to talk openly with their citizens about their inability to continue to offer free, undervalued or heavily subsidized services, and their plans for holding the private sector accountable for providing these services. This shows that those partnerships that have been most successful in Africa have been characterized by thorough planning, good communication, strong commitment from parties and effective monitoring, regulation and enforcement by governments. A recurring theme is that for PPPs to be successful, governments need to undertake thorough feasibility studies that address the issues of affordability, value for money and risk transfer.

 

Building strong relationship is also a strong a key as transparency. There must be a consensus between the public and private sector in order to make this work in Africa. It is at the merger of these sectors that we see how a unified partnership has immediate impact in the development of communities and the provision of public services.

 

Investments in public sector infrastructure are seen as an important means of maintaining economic activity. PPPs potentially bring the efficiency of business to public service delivery and avoid the politically contentious aspects of full privatization. PPPs allow governments to retain ownership while contracting the private sector to perform a specific function such as building, maintaining and operating infrastructure like roads and ports, or providing basic services like water and electricity. Both sides stand to benefit from the contractual agreement. Government earns revenue by leasing state-owned assets or alternatively pays the private sector for improved infrastructure and better service delivery. History has frequently shown that PPPs can improve urban living through collaborations that combine innovative efforts from the private sector, forward-thinking policies from governments, and support from nonprofit organizations

 

Many developed Countries started out their developments by speeding up their infrastructure and building on it, this was also made possible by healthy partnership between the Private and Public sector. The African Development Bank alludes to the fact that, the need for Public Private Partnership in Africa is mandatory for the growth of Infrastructure and social services. The essence of a PPP project is that, the private sector will do one or more of the following: provide private finance to fund the project, enter into a long term service contract; undertake the design and construction of an asset on the basis of an output specification prepared by the public sector and designed to meet broad performance targets.

 

 

Source: Paul Frimpong, University of Ghana,Associate Chartered Economic Policy Analyst / Financial Economist- ACCE-USA . Email: This e-mail address is being protected from spambots. You need JavaScript enabled to view it

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