Tackling Africa’s Infrastructure Deficits through PPPs.

Infrastructure is very critical to the advancement of a society because it is the basic systems and services that it uses in order to work effectively. It is often described as the capital stock that propels the provision of public goods and services in an economy. It has various  impacts, including those on production activities and quality of life for the citizens which thus permeate the entire society and economy of the nation. It is evident that the lack of durable infrastructure will dampen economic activities that will promote growth, wealth and job creation and overall national development in the continent.

Africa has experienced rapid and exponential economic growth in the last decade and a half. This growth has occurred despite the continent’s huge infrastructure deficit which makes Africa’s economic growth fundamentals disputable. Some economists and commentators argue that economic growth should bring about improvements in living standard as greater economic stability and increasing levels of disposable income augments demand for goods and services.

There is no doubt that a key constraint to economic growth in Africa is the dearth of adequate and functioning infrastructure. Various studies on the infrastructure deficit have been carried out by multi-lateral agencies, notably the World Bank. A study by the bank revealed that the annual financial requirement for infrastructure in Sub Saharan Africa (SSA) is around US$93 billion annually for both capital expenditures and maintenance costs. To fund this, only US$45 billion is being mobilized, two thirds paid for by African governments and citizens, 8% by multilateral and bilateral donors and the rest by the private sector in emerging economies.

Financing the infrastructure deficit across Africa will involve collective innovation both across the public and the private sectors. Traditional funding sources such as government budgets and donors are no longer sufficient, therefore, mobilizing private sector resources will boost efforts to accelerate infrastructure development. According to John Lotz (2016) Africa’s vast and current infrastructure needs are well documented and reinforced in all the national, regional and local development plans. Some Development Funding Institutions have attempted to estimate the gap at $90 billion per year until 2020.

With such a huge deficit, addressing the infrastructure deficit should be a key public policy concern of African governments. Clearly, public funding is a much-needed resource, but its availability is limited. The clamour for private investment to support infrastructure financing has become accentuated in recent years. However, to attract more private funds for infrastructure financing, African countries will have to create a more enabling business environment for investors, innovators and entrepreneurs. It must remove obstacles to private sector investment such as unpredictable regulations, bureaucratic delays, encourage innovative infrastructure financing models and contract enforcement.

The PPP Model

The Public Private Partnership (PPP) model is a well acknowledged strategy that can help Africa to bridge the infrastructure deficit to guarantee continuous development and economic growth.  Public sector budgetary constraints, private sector efficiencies and know-how are some of the principal reasons why governments around the world are  taking the economic and political decision to accelerate the use of private sector finance and adopt the PPP model to deliver needed infrastructure projects which would have been previously financed by public sector finance. The model has been successfully adopted by emerging market economies such as Turkey, India and Malaysia to accelerate the development of their infrastructure facilities. Using the PPP mechanism, Turkey is building the largest airport in the world at over 7000 hectares (the 3rd Istanbul Airport) costing over USD 4 Billion. India used the strategy to implement the Delhi Terminal Three Airport while the West Port Malaysia and Tanjuan Pelapas Port in Malaysia were constructed through the model. These are few examples of PPP models in emerging market economies from which Africa can learn useful lessons.

Benefits of PPPs

Some of the benefits of PPPs for African public sector include: improved service delivery, improved cost-effectiveness, increased investment in public infrastructure, reduce public sector risk, improved budgetary process and better use of assets. Other benefits to the government include: timely completion of construction work according to plan and to budget, repairs and maintenance are planned at the outset and in consequence assets and services are maintained at a pre-determined standard over the full length of the concession. PPPs help the public sector develop a more disciplined and commercial approach to infrastructure development whilst allowing them to retain strategic control of the overall project and service. In PPP structures, the risk of performance is transferred to the private sector. The private sector only realizes its investment if the asset performs according to the contractual obligations.

There are also benefits of PPPs for the Private sector. It gives the private sector access to secure, long-term investment opportunities. Private sector partners can profit from PPPs by achieving efficiencies, based on their managerial, technical, financial and innovation capabilities.

In view of the benefits of the PPP model, African governments must demonstrate strong political commitment through efficient, transparent and standardized procurement policies and procedures, including transparent project contracts and payment mechanisms, monitoring and evaluation methodologies, and financing requirements. There is the need for a framework of mutual trust between the public and private sectors to elicit and sustain the development of a diverse and competitive infrastructure supply ecosystem.

As a matter of fact, without the private sector, it is completely impossible for government to even finance current infrastructure needs. The private sector can mobilize the required resources to de-risk government to a certain extent and bring the private sector and the public sector together to deliver on the kind of infrastructure needs that the continent requires. The private sector is needed to contribute to filling the infrastructure financing gap.

Therefore, enhanced dialogue with the public institutions is required to reduce the perception of the (high) risk associated with African business environment. It should not be considered that public institutions alone need to approach the private sector. It should be both ways, because the private sector will also benefits from taping into the opportunities for investments, keeping in mind that the rate of return on investment in Africa is one the highest in the world. Over the past ten years, more African countries have recognized the advantages of using Private Public Partnerships (PPP) to assist with the delivery of infrastructure, using private sector resources has enabled greater efficiencies in delivering infrastructure.

In conclusion, there is no standardized solution for all countries in Africa. However, lessons learnt from successful partnerships with private sector internationally can provide a practical mechanism to substantially meet Africa’s pressing infrastructure needs. There are many elements to attract private sector infrastructure investment but surely one factor that stands out as the priority. Governments must provide the public sector with a broad framework and a system which creates a favourable environment for long term investor confidence. Addressing this priority will enable Africa to, in turn, address its infrastructure needs.

Conclusion

It is a well-documented fact that there exists a wide infrastructure gap in Africa to support the continent’s expanding economies, rapid urbanization and surging trade levels. While total spending on infrastructure is growing at a rapid pace globally, Africa’s share continues to remain almost unchanged. As a result, economic growth in many African countries is constrained by poor infrastructure. To address this infrastructure deficit, governments are looking beyond public funding and aid to mobilise private resources to implement power supply, roads, hospitals, schools and water supply projects. Established precedents of Public-Private Partnerships (PPPs) have been constrained by the nature of infrastructure investment itself and also by the region’s weak enabling environment that underpins infrastructure development.

It was in recognition of the importance of infrastructure development to Africa’s socioeconomic development that AMETRADE designed the Africa PPP Conference as a platform to bring together the practitioners and decision makers to discuss how the model can be used to advance infrastructure development in the continent. The Africa PPP has become the well-established conference strengthening collaboration between the public and private sectors and accelerating infrastructure and energy projects across Africa.

The theme of the conference this year is “Optimizing Projects, Structures & Sources of Finance for Infrastructure & Energy Projects beyond PPPs”. Experts in PPP will gather from 22-24 October 2019 in Johannesburg, South Africa, to deliberate on the challenges of mobilizing the required financial resources to fund infrastructure projects in the continent. Africa PPP 2019 will feature a one-day CPD certified training, a rare opportunity for government PPP agencies to meet and collectively define best practices. It will expand the dialogue between the investors, projects promoters and developers to analyse the different approaches from traditional to innovative PPP mechanisms and to find sustainable solutions for the implementation of infrastructure and energy projects in Africa.

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AME Trade Ltd is an international events organizer, specializing in B2B conferences with over 20 years’ experience working in emerging economies. With headquarters in the United Kingdom, AME Trade has regional offices in Angola, Cameroon, Mozambique, Senegal, South Africa and Zambia, and further representation in more than 15 countries in Africa.

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