Evolving PPP Enabling Environments in Select Sub-Saharan African Countries – What Does this Mean for Infrastructure Investors?

Introduction

In October I participated in a Pan-African PPP Conference held in Kampala (Uganda). During the event I had the opportunity to present two workshops - one on “Preparing for PPP Investment in a Competitive Environment” and another on “The Challenges of Developing Transnational PPP Projects.” 

The presentations were well received and generated numerous discussions with conference delegates, most of whom represented government ministries and PPP units that were looking at ways to improve their institutional ability to deliver PPPs successfully and how to attract international investment in the highly competitive global infrastructure investment market.

The discussions were sincerely and, in many instances, I was struck by the professionalism of African PPP practitioners who face many challenges in preparing investor ready projects.  Many of the delegates were highly skilled practitioners who are the benefactors of years of PPP policy and procurement capacity building activities sponsored by organizations such as the African Development Bank, the World Bank and USAID to name a few. The most common challenge that needs to be addressed, it was felt by delegates, is the perception that the global investors have about Sub-Saharan Africa.

No matter the challenges, many of which can be mitigated, Sub-Saharan Africa stands poised, in the 21st century to launch into a development phase - driven by government’s needs to address Africa’s changing demographics - that will open up new and unimagined opportunities for investors.  It is however important that Africa be seen in the context of its vastness and regional differences when the investment potential of PPP projects is explored.  It is also true that there are a number of regional markets (Southern Africa, West Africa, and East Africa) that have different needs, experience different risks, and which offer different opportunities. Encouragingly, many African countries are making considerable efforts to improve their PPP enabling environments which will make investors very happy.

Competing in a Competitive Regional PPP Market

The advice and recommendations given to country participants at the conference were well received.  There was particular interest in attracting investors to participant’s countries in the context of a regional PPP market that is becoming increasingly competitive and which has been impacted by the Chinese Belt and Road (BRI) initiative.

What is essentially happening in Sub-Saharan Africa is that countries are now competing against each other with the same investors for similar projects, many of them which are transnational infrastructure projects. I was repeatedly asked how countries can attract competitive investment in PPPs in relationship to their neighbors’ efforts. I stressed that the answer was in addressing investor perceptions and informing the investor community about what is being done to create investor friendly environments.

The Need for a Favorable PPP Regulatory and Enabling Environment

I pointed out that successful efforts to attract Foreign Direct Investment (FDI) are contingent upon creating national PPP regulatory and enabling environments that provide consistent and transparent approaches to PPP procurements.  I also pointed out how important it is to have procurement policies that are truly transparent and which mitigate the possibility of corruption.  Unless reforms are addressed with enthusiasm and conviction by national leaders, I pointed out that serious investors would consider non-reformist countries to be too risky to invest in.  I also pointed out that, if reforms supported by mandated best practices are adopted by countries, they will be able to ensure that they get Value for Money (VFM) out of their projects, and that the projects would be sustainable (this includes commercial, financial, operational and maintenance factors). I and many of the delegates firmly agreed that open competition, which introduces private sector vigor to PPP planning and procurements, will attract investment to projects that are beneficial to their strategic interests and sustainable development goals (SDGs).

Infrastructure Investment Strategies tied to PPP Pipelines

Countries which develop strategic infrastructure investment strategies that are tied to well defined long-term national PPP pipelines are more likely to woo serious investors who need time to mobilize their resources for investment opportunities.  It is also important that countries have strong and consistent policies on unsolicited proposals for PPPs, which if left unmanaged and uncoordinated can have negative impacts on investors’ perceptions of competitiveness and transparency.

What Investors are Looking For

There are a number of elements (benchmark indicators) that investors are likely to consider when they explore investment opportunities and country risk.  The World Bank has identified four which I have referenced below.  They include:

• PPP preparation – Are projects being prepared that are bankable and offer Value for Money for all parties?
• Procurement Approach – Are there guidelines in place for consistent, competitive and transparent procurement procedures?
• Contract Management – How well are PPP contracts managed once they have been awarded?
• Unsolicited Proposals – How are Unsolicited Proposals for PPPs procured in a way that it protects both private and public sector interests and mitigates risks?

World Bank's 2017/2018 PPP Procurement Benchmarks for Sub-Saharan Countries

With these World Bank benchmark indicators in mind I referenced the World Bank’s (2017 and 2018) PPP Procurement Benchmark Country Reports (see report references at the end of this blog as well as a detailed table on the factors considered for the benchmarks) and was able to extract country specific information which addresses where select African countries stand in relationship to the questions asked above.

The table (see below) provides insights into 34 Sub-Saharan countries and how their PPP procurement enabling environments have fared between 2017 and 2018 (the 2019 report is currently being prepared). Thirteen countries were included for the first time in the two benchmark reports.  Although it is not possible to show how first-time entry countries fared between 2017 and 2018, the scores at least provide insights into the practice of PPPs in the respective countries for investors.  Some countries have fared better than others, but it is encouraging to note that almost all Sub-African countries are working on establishing the foundations for enabling environments that are investor friendly. The differences in benchmarking scores, as revealed by the World Bank benchmark results will most certainly serve as an impetus for lesser performers to improve their procurement practices so that they can be competitive. [Note: Red text indicates a regression in performance between 2017 and 2018, while green indicates an improvement.]

It is interesting to note that 11 countries do not regulate unsolicited proposals.  Possible risks associated with unsolicited proposals should be carefully assessed in the case of these countries.

The Africa 2015 Infrascope PPP Report

The Economist Intelligence Unit prepared a report titled - Evaluating the Environment for Public-Private Partnerships in Africa - The 2015 Infrascope.- An Index and Study by The Economist Intelligence Unit.  In the report, key findings on the practice of PPPs in Africa were highlighted that would be of interest to investors.  Most report findings are pertinent for the countries that are listed in the previous table and should be considered when specific PPP markets are considered for investment opportunities..

Key findings extracted from the EIU report include the following:

• Most African governments are actively building PPP frameworks
• There is a heavy reliance on external financing 
• Broader stakeholder engagement is still needed 
• Central PPP units are proving popular, bringing benefits and risks 
• Slow PPP procurement processes are a common challenge 
• Most countries integrate PPP risk into fiscal frameworks, but others have yet to do so 
• Most governments are supportive of PPPs, with PPP-specific laws or frameworks in ten out of 15 countries (in the Infrascope report), and emerging frameworks in all but two of the rest
• Several countries have improved rules governing bidding and awarding—but others would benefit from stronger provisions
• Greater harmonization of practice is needed across ministries and different levels of government 
• Dispute resolution mechanisms exist in nearly all countries, but speed and effectiveness vary
• International arbitration of disputes remains a viable option for foreign investors in most countries
• Investment climate is a strong area of improvement, although political distortion drags down some countries
• Economic integration is driving regional (transnational) PPPs 
• Few countries have a deep, liquid local market for private infrastructure, although progress is being made
• Government payment risk is mostly moderate, with some good performers 

The Infrascope report also ranked 12 Sub-Sharan African countries according to their institutional scores and ability to implement PPPs.  These countries were scored as follows:

• Mature Score (80 – 100):  South Africa (70.7)
• Developed Score (60 – 79.9): none
• Emerging Score (30 – 59.9): Kenya (51.4); Tanzania (48.6); Ivory Coast (45.5); Uganda (45.1); Rwanda (43.5); Ghana (43.0); Cameroon (38.2); Nigeria (36.8); Zambia (34.2); Angola (31.4)
• Nascent Score (0 – 29.9): Democratic Republic of the Congo (20.6)

[Note: It must be pointed out that many African nations have improved their performance over these 2015 key findings and that their PPP investment environment has generally improved since 2015. Unfortunately, a more recent Infrascope report for Africa is not available to verify the current status of the countries that are listed.]

UNECE People First PPPs

In addition, there is an increasing interest in Sub-Saharan Africa in promoting “People First PPPs” that are being championed by the UNECE PPP Center of Excellence in Geneva (see link - https://www.uneceppp-icoe.org/people-first-ppps/what-are-people-first-ppps/). The interest in “People First PPPs” is being driven by governments who wish to promote PPP infrastructure and service projects that are in harmony with their Sustainable Development Goals (SDGs) and which are people and user friendly.

Conclusion

Overall, I feel that investment opportunities for PPPs that offer Value for Money (VfM), which are bankable, and which are focused on people are emerging in select countries in Sub-Saharan Africa.  This trend will offer green fund investors opportunities to invest in PPPs that are focused on sustainable and resilient development.  2020 should provide additional insights into PPP best practice indicators – hopefully mostly most of which are positive for increased investment in PPPs.

It will also be interesting to see how Sub-Saharan members of the World Association of PPP Units and Professionals (WAPPP - https://wappp.org/) and the African PPP Network will advance the practice of PPPs in Africa.

The International Sustainable Resilience Center (ISRC - https://ippprc.org/) to which I am a senior advisor is also focused on supporting the development of sustainable and resilient PPPs in Africa.

Sources:

Evaluating the environment for public-private partnerships in Africa - The 2015 Infrascope - An index and study by The Economist Intelligence Unit  

https://infrascope.eiu.com/wp-content/uploads/2017/02/Africa_Infrascope_Report_2015_English-1.pdf

Procuring Infrastructure Public-Private Partnerships Report 2018 - Assessing Government Capability to Prepare, Procure, and Manage PPPs – WB

https://openknowledge.worldbank.org/handle/10986/29605

Benchmarking Public-Private Partnerships Procurement 2017 : Assessing Government Capability to Prepare, Procure, and Manage PPPs

https://openknowledge.worldbank.org/handle/10986/32501

Benchmarking Metrics (extracted from the World Bank 2017 Benchmark Report – see table below)