Public-Private Partnerships: Way to go for Africa

 

Tom Butler, global head of mining at the World Bank/International Finance Corporation, believes infrastructure development is at the heart of the next step in Africa’s development. Sharing the same sentiments, the United Nations Economic and Social Commission for Asia and the Pacific noted that infrastructure development is crucial to economic growth and regional economic co-operation.

“The provision of adequate infrastructure, along with macroeconomic stability and a long-term development strategy, is one of the necessary conditions for sustainable economic and social development,” noted the United Nations Economic and Social Commission for Asia and the Pacific.

Giving emphasis to the significance of infrastructure development, the Program Infrastructure Development for Africa states that infrastructure plays a key role in economic growth and poverty reduction.

The Program Infrastructure Development for Africa further said lack of infrastructure affects productivity and raises production and transaction costs, which hinders growth by reducing the competitiveness of businesses and the ability of African governments to pursue economic and social development policies.

“The lack of infrastructure in Africa is widely recognised, and deficits of infrastructure development have a clear impact on competitiveness: African countries, particularly those south of the Sahara, are among the least competitive in the world, and infrastructure appears to be one of the most important factors holding them back.

“Deficient infrastructure in today’s Africa has been found to sap growth by as much as 2 percent a year. This is a continental problem that requires a continental solution,” explained the Program Infrastructure Development for Africa. 

Infrastructure challenge

Sadly, infrastructure woes in most – if not all – African countries are undermining the continent’s competitiveness and discourage investors, as noted by the Program Infrastructure Development for Africa.

The United Nations Development Programme economic advisor, Amarakoon Bandara, recently asserted that poor infrastructure was a common hurdle in Africa’s quest to attract investment and business growth.

“Poor road connectivity and serious port-related delays undermine competitiveness and discourage investors. For instance, infrastructure in Zimbabwe is on average 30 years old and requires about US$18 billion for modernisation,” Bandara said, adding that most problematic is hard infrastructure, but soft infrastructure, especially in relation to customs and trade facilitation, is also an important determinant of success or failure.”

According to Bandara, again, the whole African Special Economic Zones show low levels of investment in infrastructure, and integration of the zones to the rest of the economy is low. This low level of investment in infrastructure is hindering the transformation of the continent of Africa

Zawya Limited, a company that provides business intelligence and news focused on the Middle East and North Africa regions, highlights infrastructure woes in the continent of Africa when it says Africa has a number of economic blocs, but progress has been slow and varied, and these blocs often lack the mandate to pursue joint economic projects.

The Dubai headquartered company explained: “Program Infrastructure Development for Africa estimates road access rate in Africa stands at only 34 percent compared with 50 percent in other parts of the developing world, while transport costs are 100 percent higher compared to other region.

“Meanwhile, Internet penetration rate is a mere 6 percent compared to an average of 40 percent elsewhere in the developing world.

“Only 30 percent of Africa’s population has access to electricity, compared to 70 to 90 percent in other parts of the developing world.

“Water resources are underused with only 5 percent of agriculture under irrigation,” noted Zawya, adding that this is hindering economic development and the programme is estimated to require investments to the tune of US$360 billion between 2011 and 2040, if Africa is to catch up with the rest of the world.

Zawya goes on to say: “Such costs are beyond the financing capacities of governments or even donors. Therefore, attracting private sector participation through Public-Private Partnerships is essential for the delivery of various infrastructure projects envisioned under the Program Infrastructure Development for Africa.”

Public-Private Partnerships the way to go

Public-Private Partnerships are needed for the continent of Africa to succeed in its infrastructure development plans. Public-Public Partnerships refer to business ventures which are financed and operated by partnerships between governments and private sector organisations.

Recently, Nigerian Institute of Civil Engineers national chairperson Saliu Lawal pointed out that while it is clear that African Governments and the private sector should work more closely together, the responsibilities of the parties involved must be more clearly defined.

This means that governments should provide an enabling environment to attract private sector participation through Public-Private Partnerships to deliver infrastructure development programmes and projects, while the private sector should, at the same time, ensure that the necessary funds andexpertise are available for these projects.

When entering Public-Private Partnerships, said Kenya Vision 2030 director of enablers and macro-reforms Jonathan Lodompui, it is important for African governments to understand that the private sector will be looking for bankable projects with commercial value through which they could make returns for their shareholders.

“Ensuring value for money in an infrastructure project should thus be at the core of the public sector’s decision to engage in a large infrastructure project,” explained Lodompui, adding that African governments must hence be willing to withdraw some ground which might include having a lesser shareholding in a specific project to allow the private sector to drive the development.

Gauteng Partnership Fund Chief Executive Officer Boni Muvevi also said African governments must realise their limitations and recognise where the private sector could add more value.

This means in order for more public-private partnerships to emerge and develop the African continent, member states need to improve the business environment in their respective countries.

At present serious constraints exist in many countries. These constraints take in inadequate legal and regulatory framework for public-private partnerships; lack of technical skills to manage public-private partnership programmes and projects; unfavorable investor perception of country risk; the continent’s limited role in global trade and investment; small market size; limited infrastructure; and limited financial markets.

To reverse these challenges, the African Development Bank is therefore encouraging African countries to create the necessary legal and regulatory framework for public-private partnerships as well as facilitating networking and sharing of experience among regulatory agencies and other similar organisations.

More so, the African Development Bank believes policy decision makers in the continent need to establish functional legal frameworks to effectively regulate public-private partnerships, and these policies and strategies must be clear and visible.

Public-private partnerships are crucial in making possible the formation of large, competitive markets in Africa. Accordingly, governments must embrace public-private partnerships to foster development and to boost intra-regional trade in the great continent of Africa.

June 2014
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