Transnational PPP Infrastructure Projects in Africa – Challenges, Risks, and Opportunities

The Need to Expedite Transnational Projects

There is broad consensus on the need to find ways to expedite transnational Public-Private-Partnership (PPP) infrastructure projects in Africa. In addition, there is a serious need for an approach that is sustainable and feasible, especially for land-locked countries in Africa which cannot afford to be held “hostage” by their neighbors (partners) when it comes to agreeing on the terms and conditions of transnational projects.

It is unfortunate when issues that could be thoughtfully negotiated between “equal” government partners are not mitigated. It seems that African countries find it hard at times to negotiate mutually beneficial contract agreements for transnational projects.  The reasons vary, but as long as public sector institutional and political barriers remain, regional development will be hamstrung and projects that have great merit will be delayed.

Why is there a lack of cooperation is a major debate in Africa and many reasons are given. They include legacy issues where African countries grapple with geopolitical contexts (post-colonial) that are decades in the making.  Additionally, geographic constraints on transportation corridors become unmitigable because they remain subject to political, cultural, ideological, technological and perception barriers.

 As a result, the best and shortest route for linear projects are often not an option.  This results in unnecessary costly detours and lost opportunities that seem senseless to logical considerations. This also kills numerous deserving projects. Many of these challenges can be overcome if firm political leadership implements reforms that are conciliatory towards neighbors and which are truly focused on common regional sustainability goals. 

World Economic Forum Report On African Transnational Projects

The World Economic Forum (WEF) published the following report in 2104 – African Strategic Infrastructure Initiative Managing Transnational Infrastructure Programs in Africa – Challenges and Best Practices. The following observations were made:

• Increasingly, political leaders around the world share a common vision of regional integration – to open up regional markets, link production clusters in different countries, facilitate the free movement of goods, services and people, and foster political stability and peace. 
• A further common ambition is to promote transnational infrastructure as a physical backbone of this regional integration, and initiatives are under way to give greater priority to cross-border programs – especially for landlocked countries

The WEF also reference the Priority Action Plan of the Program for Infrastructure Development in Africa (PIDA PAP) as an agent of delivery, while acknowledging that challenges for transnational infrastructure projects are severe in Africa because of its many languages, currencies, variations in the financial capacities of individual countries, inadequate maturity levels of public institutions and shortcomings persist in the capability of and capacity for managing transnational infrastructure programs. 

Questions that Need to be Answered

When PPP models are considered for transnational PPP projects, there are a myriad of questions that need to be answered (which are amplified when more than one country is involved.  These include:  Who's contract is it? Which Private Party? Which Government Entity? Who’s Management Responsibility? Who’s Financing Constraints? Who Remunerates? Who’s Risk? Who’s Design Standards? Who is the Implementer? Who is the Operator? Who monitors? What innovative methods? Who’s quality of life standards? Who’s Economic Development Priorities?

Challenges Facing Transnational PPP Projects

The WEF and the World Bank have identified challenges that face proponents and implementers of transnational projects in Africa.  They include the following;

• Financial - agreeing on the sharing of program costs, risks and benefits, and then implementing agreements in the absence of a supranational authority; or structuring the financing with different currencies and different national financial capacities
• Technical - aligning different standards (e.g. cross-border railway network gauges) and enforcement of legal agreements and the alignment of standards
• Heritage Factors - the need to build relationships based on trust that overcome historical legacies, political differences, language barriers
• Many Stakeholders – transnational projects increase the number of stakeholders with more divergent expectations
• National Agendas and Priorities – it is difficult to align national development agendas (PPP pipelines) and priorities when there are limited resources – also different regional agreements
• Ensuring Appropriate Ownership – This is difficult in the case of PPPs
• Coordination of Responsibilities – This is difficult when there are different governments interacting with the private sector Project Company
• Unilateral Decision Making – This is perceived as a major risk by both governments and the private sector
• Poor Feasibility Studies – Many countries struggle to pool resources for feasibility studies
• PPP Enabling Environments – Countries have different legal systems and different PPP Laws or lack of them as well as different capacities to implement PPPs – this includes preparation of PPPs, procurement of PPPs, and PPP Contract Management
• Innovation – Many countries in Africa lack to ability to assess offered innovations and the VfM of added costs
• Unsolicited Proposals – Common with transnational PPPs – difficult to determine their VfM
• Competitive Procurement – differences in transparency and competitiveness
• Market Perceptions – can vary vastly between different countries

Strategies for Transnational PPP Projects

Based on personal observations in Africa and those identified by the WEF and the World Bank, I have identified 10 actions that if considered, could smooth the path forward.  They include the following:

• The need to institutionalize cross-national collaboration through institutions that represent all partner countries
• Creating a conducive enabling environment through the development of a single integrated framework and collaborative institutional for planning and designing transnational projects – this includes improving institutional capacity
• Integrate infrastructure plans and regional CBA by establish a regional sector planning framework that harmonizes common national strategic goals (PPP Pipelines) that are aligned with SBDs and anchored by MOUS and treaties
• Conduct regional feasibility studies for bankability of proposed projects, not independent studies that are incompatible
• Balanced risk allocation between all country partners and harmonize regulations which can impede transnational risk mitigation
• Create optimal financing structure that reduce revenue exchange risks for example
• Conduct a competitive and transparent tendering strategy that all country partners subscribe to
• Aligned construction monitoring through a SPPA ( Special Purpose Public Agency) monitoring body for the project
• Aligned project management (monitoring and maintenance) that has common monitoring protocols
• Manage projects for sustainably and functional handover

[Note: In 2008 the World Bank published a transnational project toolkit - Building Regional Power Pools: A Toolkit  - that can serve as a useful resource  -  

https://documents.worldbank.org/curated/en/993971468313506710/Building-regional-power-pools-a-toolkit]

PIDA PAP – An Institutional Focused on Delivering Transnational PPP projects in Africa 

PIDA (Program for Infrastructure Development in Africa) is an African Union Commission (AUC) initiative. PIDA in partnership with the NEPAD Planning and Coordinating Agency (NPCA), the African Development Bank, and the United Nations Economic Commission for Africa, aims to accelerate infrastructure development across the continent.  PIDA offers a strategic framework (through 2040) that will facilitate continental cross-border infrastructure projects (i.e. Energy, Transport, Information and Communication Technologies (ICT) and Trans-boundary Water Resources). Additionally, PIDA’s main purpose is to strengthen the consensus and ownership of large cross-border infrastructure projects that are developed on a continental scale [Note: see https://www.au-pida.org/pida-pap/]

On the PIDA site, information on 51 programs and projects divided into 483 projects covering transport, energy, information and communication technology (ICT) and trans-boundary water sectors can be found. Energy and transport projects and program represent around 95% of the total cost of projects, while ICT and water represent lower percentages. These projects are indicative of the need (an potential opportunities) for investment in transformative investments necessary to support African trade, promote economic growth, create jobs, and realize country and regional specific sustainable development goals (SDGs). 

Potential Transnational PPP Projects – Where is the Information?

Often investors ask where can they find information on large transnational PPPinfrastructure projects in Africa. The PIDA PAP tool [database:  https://www.au-pida.org/pida-projects/] list project descriptions that can be easily accessed. See website interface below.

Project descriptions, project objectives and benefits, and project risks are listed are included for projects listed in the data base.

Project Risks for Transnational Projects in Africa

Typical project risks identified in the PIDA project database, many which can be mitigated through greater cooperation include the following:

• Risks ratifying treaties, signing of loans and grants provided by AfDB and EU, approving institutional frameworks for proposed Corridor Management Authority, signing intergovernmental agreements and ratifying related legal frameworks
• Availability of funds to construct the projects
• Member states giving recognition and providing the necessary support to project corridor authorities during the operational phase
• Stakeholder alignment in respect to inter government agreements on terms 
• Commodity price fluctuations (e.g. fluctuation in the price of oil could affect gas price which in tandem has impact on the project economics)
• Environmental and social risks

Unsurprisingly, these project risks are not Africa specific and can be identified in almost all global transnational projects, even those associated for example with the Chinese Belt and Route Initiative (BRI) in Asia.

Opportunities for African Transnational Projects

However, one should not focus just of risks, but also look at the opportunities (benefits) that the regional projects offer.  The PIDA project database list many, some of which I have extracted below.  They include the following:

• The facilitation of transportation so as to sustain the free flow of persons, trade and improve the respective economies of the participating states.
• Diversification of export routes 
• Integration of the economies of a sub-regions in line with objectives of New Partnership for Africa’s Development (NEPAD)
• Strengthening regional cooperation
• Creation of wealth and poverty alleviation by opening up economic growth opportunities in a project sub-region
• Boosting the Gross Domestic Product (GDP) and improving the living standards of the people within a project sub-region

A Checklist to Contemplate

It is useful for countries that are contemplating investment ready transnational projects to ask whether proponents have:

• Identified a collaborative process for the identification of projects of common strategic interest that are economically feasible and are not subject to regional rivalries or egos
• Completed a comprehensive feasibility study to asses financial and commercial viability
• Harmonized PPP enabling environments created so that a common PPP legal framework exists for transnational project(s)
• Implemented a balanced approach to competing national strategic interests for PPP project so that all state partners are comfortable (on a wide variety of issues including proportional debt, risk assumption and international mediation for example)
• Assured private sector partners potential political differences and risk will not “derail” projects (it might be necessary to get MIGA insurance)
• Made a good case for the project to all stakeholder (Market Sounding)
• Completed a Value for Money assessment
• Explored ways to identify impartial mediators who could step in should a disagreement arise between the different country partners
• Established international treaties (or regional treaties) that provide a legal framework that protects all interested parties (including the private and public sector partners)
• Established compatible technology and infrastructure standards that prevent design and construction problems
• Established a code of conduct regarding intellectual property rights that might differ in each country
• Developed guidelines that are ethical and combat corrupt practices
• Adopted compatible internationally acceptable procurement standards that promote competitive and transparent procurements (these could be adopted from the World Bank, EU, or the African Development Bank for example)
• Depoliticized projects and only allowed projects which have a sound economic rationale 
• Formed (in the case of utility projects) a transnational regulatory body that is impartial and primarily focused on the revenue needs of the project
• Explored creative ways to creatively manage currency risk between countries that do not share a common currency (this might include the need to use a third sturdy currency for the project)
• Formed a SPPD commission that manages and monitors the project in a neutral manner 
• Created a common approach to “force majeure” events in one country which could impact the other country (e.g. hydroelectric projects such as the Kariba Dam which could be impacted by regional droughts)
• Aligned partnering countries’ Sustainable Development Goals (SDGs) so that only sustainable and resilient projects are considered

Closing Comments

For transnational projects to be successful and sustainable, national rivalries need to be bridged, with the intention of seeking regional common good.  This also should include the principle of People First PPPs which transcend national rivalries.  Transnational projects are challenging, but with increasing globalization they are becoming more relevant.  Challenges can be mitigated through common sense and a common purpose that is grounded in reality and which avoids political dominance or rivalry. It is important that all transnational PPP project proponents are willing parties and that clearly identified common objectives drive the project, not just the needs of individual partners.

If agreement cannot be reached, don’t launch a transnational PPP project.

Sources and Resources

• Bloomberg (2019):  China’s Built a Railroad to Nowhere in Kenya - https://www.bloomberg.com/news/features/2019-07-19/china-s-belt-and-road-leaves-kenya-with-a-railroad-to-nowhere
• Bloomberg (2019): Total Suspends Planned $3.5 billion Uganda-Tanzania Oil Pipe -  https://www.bloomberg.com/amp/news/articles/2019-09-04/total-suspends-planned-3-5-billion-uganda-tanzania-oil-pipe
• PIDA PAP (2019):  Web Information Center -  https://www.au-pida.org/pida-pap/
• World Bank (2008): Building Regional Power Pools: A Toolkit  - that can serve as a useful resource  -  https://documents.worldbank.org/curated/en/993971468313506710/Building-regional-power-pools-a-toolkit
• World Bank (2018) Procuring Infrastructure Public Private Partnerships - https://ppp.worldbank.org/public-private-partnership/sites/ppp.worldbank.org/files/documents/Procuring%20Infrastructure%20Public-Private%20Partnerships%20_2018_EN2_0.pdf
• World Economic Forum (2014):   African Strategic Infrastructure Initiative Managing Transnational Infrastructure Programs in Africa – Challenges and Best Practices -https://www3.weforum.org/docs/WEF_AfricanStrategicInfrastructure_Report_2014.pdf