Africa & The Public-Private Partnership Investments

A public-private partnership (PPP) is a long-term contract between a private party and a public authority for the provision of a public asset or service, in which the private party assumes major risk and management responsibilities (World Bank, 2012). Private capital often finances government projects and services upfront, then reaps returns from taxpayers and/or customers over the life of the PPP contract. It is distinct from a concession in that it is more sophisticated and long-term. Concessions are contracts in which the consideration for the works or services to be performed is either the right to exploit the work or service alone or the right to exploit the work or service combined with remuneration.

The above definition includes PPPs that provide for both prospective and current assets and related services; includes PPPs in which the private party is reimbursed entirely by service users, as well as those in which a government agency makes some or all payments; and includes contracts in a variety of sectors and for a variety of services, as long as there is a compelling good in the delivery of public services and the project involves long-life assets linked to the PPP contract’s long term nature (World Bank, 2012).

The project functions that are handed to the private party, such as design, construction, finance, operations, and maintenance, may differ from contract to contract, but the private party is always responsible for project performance and carries major risk and management responsibility. In most PPP contracts, each risk is assigned to the party that can best monitor and manage it. Hedging to the private sector is not a goal, but it is necessary for full management responsibility transfer and alignment of private and public preferences.

At a bare minimum, a PPP will contain a protracted commitment to supply infrastructure services, which includes infrastructure design and construction, as well as asset renewal and long-term asset maintenance. When the private operator is ready to devote to service quality and performance, and the procurement authority can specify that same quality and performance, most PPPs include additional services, such as complete infrastructure operation. These extra services should be provided on a long-term basis as well.

Practitioners may develop and execute projects that maximize cost benefits and social well-being by matching private partner profit motivations with public sector service objectives that promote the public interest provided their projects are well-selected and their PPPs are well organized. A large amount of information on Public-Private Partnerships (PPPs) has been accumulated by a diverse group of practitioners from government, the private sector, international development agencies, academia, and expert advisers all around the world.

Many nations have struggled to repay their loans as a result of the COVID-19 epidemic, and a few have defaulted in 2020. Governments began to place a greater emphasis on healthcare and social welfare initiatives (PPI Annual Report 2020). As a result, infrastructure expenditure in 2020 will take a back seat. Existing infrastructure projects have been delayed or canceled since the start of 2020 owing to supply-chain interruptions, travel and shipping restrictions, and other roadblocks. Reduced demand or the need for renegotiations also halted or delayed the completion of several projects that were already in the works. Global public debt has reached new highs, and sovereign credit ratings in emerging countries have been reduced. The pandemic’s rising unpredictability has raised the danger for private sector participation in crucial infrastructure sectors, particularly transportation.

Nonetheless, in the second part of the year, infrastructure spending increased as nations recovered from early lockdowns and vaccine rollouts boosted prospects of a return to normalcy. Infrastructure investment commitments are a cornerstone of efforts to mitigate climate change, and they will play a key role in the global economic rebound following the epidemic. (PPI 2020 Annual Report).

In the last decade, the use of public-private partnerships to conceive, develop, and deliver infrastructure has increased dramatically across the world. However, the availability of trustworthy data to assist governments and consultants in properly designing and delivering programs has lagged. However, a significant effort remains to be done to make ventures “investor-ready” and to build creative frameworks for leveraging private capital. The World Bank Group is dedicated to assisting governments in making informed decisions regarding increasing infrastructure service access and quality, including the use of public-private partnerships (PPPs) when appropriate. Working to support strong institutions, enhance data, create capacity, develop and test technologies, promote transparency, and encourage interaction with all key stakeholders helps to allow this approach (World Bank, 2019).

Building modernized, feasible, and dependable infrastructure is vital for satisfying the expectations of billions of people throughout the world while also tackling the climate change problem. Infrastructure investment promotes economic growth, creates new economic possibilities, and supports human capital investment. The figures are staggering: around 800 million people lack access to electricity, and 2.2 billion people lack access to adequate drinking water. Congested and insufficient ports, airports, and highways stifle expansion and commerce (World Bank, 2019).

Public-private partnerships (PPPs) can be used to provide more people with high-quality infrastructure services. PPPs may improve the efficiency and sustainability of public services such as energy, transportation, telecommunications, water, medical services, and education when they are well-designed and executed in a balanced regulatory framework. PPPs can also help with risk distribution between public and private businesses (World Bank, 2019). Due to limited public sector resources, growing emphasis on public spending across Africa, and concerns about the effectiveness of state firms and agencies in providing services, several governments have increased their efforts to foster private-sector collaborations (ICA, 2018).

PPPs have evolved as a means of overcoming the restrictions that developing nations, particularly in Sub-Saharan Africa, confront. This is due to a lack of public finances, corruption, ineffective planning, project formulation, and insufficient capacities. Governments may use PPPs to leverage into private sector financing and inventiveness to fund vital infrastructure, enhance project preparation, execution, and administration, and provide residents with efficient services. As a result, they are crucial in addressing the obstacles to executing the Sustainable Development Goals (SDGs), which supports and promotes successful public-private partnerships in goal SDG-17 says, Ibrahim Zeidy, Director COMESA Monetary Institute.

In 2018, a total of $100.8 billion was invested in Africa’s infrastructure projects. This represents a significant increase (24 percent) over the $81.6 billion pledged in 2017 and a 38 percent increase over the $75.8 billion average pledged over the preceding three years. The adoption, for the first time, of stand-alone promises made by the private sector, notably in the ICT and energy sectors, accounts for over half ($9.5 billion) of the $19.2 billion increase seen in 2018. Previously, the private sector’s promises were solely acquired in the context of PPPs. The rest of the increase comes from increased promises from China ($6.3 billion) and African nations ($3.2 billion). African countries committed $37.5 billion, accounting for 37% of all 2018 funding, trailed by China ($25.7 billion, 26%) and ICA members ($20.2 billion, 20%). (ICA).

In 2020, investment pledges totaled $45.7 billion across 252 projects, a 52 percent decrease from 2019. It has never been this low since 2004 when it was $31.3 billion. Except for Sub-Saharan Africa and the Middle East and North Africa (MENA), private investment commitments dropped in all areas in 2020. In terms of PPI investments, SSA had a fantastic year. It got US$6.3 billion for 24 projects, representing a 7% increase over 2019 and a 14 percent raise over the five-year average of US$5.5 billion. MENA saw a 72 percent raise over 2019, however, this was primarily due to historically low investment levels in 2019. In fact, according to the PPI Annual Report 2020, the region suffered a 54 percent drop from the five-year average.

According to the African Development Bank’s African Economic Outlook 2018, Africa’s yearly infrastructure deficit is now anticipated to be $108 billion per year, rising to $170 billion per year by 2025. This chasm may be bridged with determined leadership, political resolve, and private sector involvement in infrastructure development. For Africa’s industrialization push to succeed, it must have the essential infrastructure, such as roads, ports, and electricity. PPPs are viewed as a crucial tool for closing this gap by attracting private sector infrastructure investment. Specifically, the more developed Africa’s infrastructure is, the more efficiently its industries will run along the value stream.

In 2020, 44 governments have adopted investment pledges, compared to 61 countries in 2019. Nonetheless, given the pandemic’s scope and severity, the decline from the previous five-year average of 48 nations was not significant. There were 16 nations in Sub-Saharan Africa with investment pledges, the most of any area. Investment pledges in the region were US$6.3 billion, up 7% over the previous year (PPI Annual Report 2020).

The private sector’s significant contribution to Africa’s growth and prosperity necessitates a deeper public-private partnership. The business sector can play a role in addressing the severe difficulties of unemployment. The private enterprise can help to build additional industries that will help to reduce young unemployment dramatically. PPPs will make it easier for the private sector to participate in policymaking and will help the continent’s economy flourish, resulting in more employment for the continent’s unemployed young, who account for 60% of the continent’s unemployed, according to the UN. PPPs will, above all, accelerate the industrialization goal, which is critical for Africa’s achievement of both Agenda 2030 and 2063. (NEPAD).

The governmental and commercial sectors must collaborate for Africa’s industries to benefit from the implementation of the African Continental Free Trade Area (AfCFTA), which began in January 2021. According to UNECA, AfCFTA will encompass a market with a GDP of USD 2.5 trillion. However, if African governments do not collaborate with the private sector to develop businesses that would benefit from intra-African trade and stimulate the development of additional industrial products, the AfCFTA’s mega-market opportunity will be wasted.

As a result, while we are eager to reap the benefits of the AfCFTA, its relevance in the vision of industrialized Africa will be determined by how the public sector interacts and embraces the private sector as a partner in development rather than a competitor. For PPPs to come full circle, the role of governments in specific interactions must be reinterpreted. The expected progression would prohibit African governments from functioning as both managers and financial sponsors, which would be beneficial to the general population.

Finally, guaranteeing the smooth operation of Africa’s Chambers of Commerce, which have the authority to build conductive channels through which the private sector’s interests are maintained and handled, would be critical in expediting PPPs. The private sector’s involvement will aid in the expansion of Africa’s service economy to satisfy the demands of our industrialization goal.

REFERENCES:

Show Buttons
Hide Buttons