Public-Private Partnerships, are they leaving African Countries worse-off?

Introduction:

Governments across the entire continent of Africa are faced with many challenges financing infrastructure development. What is clear is, they face competing demands from different sectors of the economy be it providing adequate shelter, road networks, telecom infrastructure etc. In most cases, all these demands are necessary but funding these projects is a major challenge given how constrained most Countries are resource wise. The Infrastructure Consortium for Africa (ICA) reports that between 2013 and 2017, the average annual funding for infrastructure development in Africa was $77bn, these needs have obviously increased overtime. According to the African Development Bank however, Africa needs between $130bn and $170bn dollars annually to address infrastructure needs. Clearly, we have a gap, and this gap can only be closed by pooling resources from the private sector to supplement the efforts of the public sector.

Why we need Public Private Partnerships (PPPs):

PPPs are not only essential for building collaboration, but they play a central role in:

o?? Mobilizing resources into the continent-A good example here is the British International Investment that channels 60% of its investments to Africa.

o?? Providing private players an opportunity to take a front row seat in advancing sustainable development on the African continent as most of these resources go into sustainability related projects.

o?? Making it easy for the private sector to participate in projects that uplift the lives of vulnerable communities, and

o?? PPPs make it possible to transfer skills to locals and this helps them run their enterprises profitably which increases chances of success.

PPPs Concerns:

PPPs despite their central role in financing infrastructure present a number of concerns on the African continent. We need to understand that private sector investments through PPPs are not free, this money is usually paid back through taxes or users of the facilities these resources help build.

Major concerns advanced by private financiers range from political risk, unclear laws and regulations of host countries, poor administration of these projects and generally, corruption. On the flip side however, several concerns from the public sector side are also evident:

o?? The major concern in most Countries is usually the duration of concessions. Private investors usually manage these projects including collection of fees e.g for toll gates and in most cases, they collect these revenues in perpetuity at the detriment of the host country. Most PPPs I have reviewed don’t even show when collection of such fees would start or end, this in my view presents a huge revenue leakage for the host Country.

o?? The other concern is how overpriced these projects are. This reduces the profitability of projects and prolongs recoveries by private financiers. Recently, a PPP signed in one African country saw the financier investing $1mn/km of road development, a cost which was widely criticized as being overpriced.

o?? Inflated procurement in PPPs is also common. This not only inflates project costs but also substantially increases the payment period of these investments. This at the end of the day again disadvantages the host Country.

o?? Fees charged for using such PPP structures are usually too highly for the local population to pay. A typical example is the wide outcry in many countries of how expensive toll fees are.

Path forward:

PPPs as illustrated above can be an effective tool in driving infrastructure development on the continent. However, unless properly monitored and implemented, my view is that they can leave a host Country worse off than before. Given the desire by investors to make a profit, should we really be looking to PPPs to develop our economies?