Delivering Successful Infrastructure Projects through Public Private Partnerships

LAGOS, Nigeria, Capital Markets in Africa: What are the challenges in implementing successful and sustainable infrastructure projects in Africa? Why do projects take so long to become a reality? Surely one of the biggest challenges for Government Authorities is the organization and administration of a framework that will reduce bottlenecks and facilitate project promoters to address risks appropriately, such that projects can proceed. Over the past ten years, more African countries have recognized the advantages of using Private Public Partnerships (PPP) to assist with the delivery of infrastructure. Using private sector resources enables greater efficiencies in delivering infrastructure. What are the options to encourage private sector developers to assist in the early stages of project development? What are the factors that are important to transform an initial concept to the final infrastructure project?  

Africa’s vast and current needs in terms of infrastructure are well documented and reinforced in all the national, regional and local development plans. Some of the Development Funding Institutions have attempted to put a value to this shortfall ($90 billion per year until 2020). The exercise is academic because the demand for infrastructure is fuelled by economic growth rates which remain above most global averages, a growing middle class and the critical function that infrastructure must fulfil to realize the economic value of new and rich resources.

The symptoms are evident to all who travel in Africa: growing informal settlements; traffic congestion in all the major cities; inefficient ports with delays that have become the norm; and regular power outages directly inhibiting economic growth.

Road transport needs dominate with 90% of African commuters still reliant on road transport. The experience of sitting in a taxi for hours on the grid-locked roads and bridges in Lagos, the chaotic taxi motorcycles weaving through the lanes in Kampala in an attempt to shorten the commuters’ travel time and the frustration of navigating around overloaded traffic circles in peak hours in the CBD of Nairobi are all tangible evidence of this need. Officials in Ghana have stated that there is a direct correlation between the lack of power and GDP growth and this has manifested itself in power protests in Accra. South Africa now has in excess of 10 service delivery protests daily!

Urbanization also brings to the fore the importance of providing potable water to the urban dweller. Africa will, in the next 15 years have an additional 350 million urban residents. In arid countries such as Namibia and Botswana, these problems are accentuated by the lack of natural lakes and perineal rivers. Large water carrier projects to the cities are now pressing national priorities. Nelson Mandela Metro in South Africa recently launched a costly desalinization project based on future water demand projections.

What is driving Public Sector to look more towards Private Sector Involvement? 
The Availability of Funds:
The recent economic downturn and the impact of reduced demand for commodities, primarily from the Chinese market, has dampened the high predictions of growth that were so prevalent only four or five years ago and were boasted of at the start of almost every conference and discussion forum on Africa. The subsequent implications of the economic downturn are diminished capital expenditure on most national budgets. Countries like Zambia and Angola, whose economies were largely reliant on single resources viz. copper and oil respectively, now require drastic financial adjustment programs. The current liquidity problem in Nigeria was highlighted by major international airlines cancelling flights to Lagos. Yet many investors and lenders continue to affirm the availability of funding for infrastructure in Africa. The rapid growth of cell phones and even car ownership sometimes conflicts with our perceptions of affordability. The MPesa system of banking in Kenya has shown that there is no lack of financial ingenuity to supply appropriate solutions for African problems. So we must conclude that although funding at

The current liquidity problem in Nigeria was highlighted by major international airlines cancelling flights to Lagos. Yet many investors and lenders continue to affirm the availability of funding for infrastructure in Africa. The rapid growth of cell phones and even car ownership sometimes conflicts with our perceptions of affordability. The MPesa system of banking in Kenya has shown that there is no lack of financial ingenuity to supply appropriate solutions for African problems. So we must conclude that although funding at

The current liquidity problem in Nigeria was highlighted by major international airlines cancelling flights to Lagos. Yet many investors and lenders continue to affirm the availability of funding for infrastructure in Africa. The rapid growth of cell phones and even car ownership sometimes conflicts with our perceptions of affordability. The MPesa system of banking in Kenya has shown that there is no lack of financial ingenuity to supply appropriate solutions for African problems. So we must conclude that although funding at the government level is constrained, private sector funding is available.

The Shortage of Technical Experience in Public Sector:
Technical skills are either locally available or can be readily imported. The trends on procuring public infrastructure in many African countries have demonstrated that there is no shortage of experienced individuals and companies who are willing to provide the technical expertise and skills to implement these projects. The prequalification processes used to identify suitable entities to tender infrastructure projects are often “over- subscribed”. Early this year over 20 major international companies registered their interest and attended a bid conference for road projects in Zambia notwithstanding the relatively unfavourable economic environment. The dam projects recently launched in Kenya, have similarly attracted substantial interest with entities from Spain, Italy, Israel, USA, Turkey, China, India, Korea and South Africa recording their intention to be involved.

Some statistics have shown that large infrastructure projects take on average seven years from concept to implementation. From experience, this period of gestation is probably longer for infrastructure projects in Africa. So why with available funding and sufficient technical capacity does the delivery of infrastructure still face so many challenges in Africa?

What are the fundamentals for Private Sector Involvement? 
To understand this question we need to reflect on the fundamental criteria that any proposed infrastructure project should meet to make it attractive. Many factors are interrelated but the discussion below attempts to categorize the elements of a successful project. It highlights the measure of readiness to attract private sector partners.

Clear Rationale for Project and Political Support:
The project should have a definite economic benefit. This quantifiable element demonstrates the essential need for the project and is a clear measure that the direct or indirect benefits of the project outweigh the costs to the community. These projects are often part of a well-developed or a visionary master plan – at national or local level. Public sector projects that tend to ignore this factor are sometimes driven by a purely political agenda. Private sector investments supporting political priorities rather than public infrastructure priorities are generally related to short-term returns. However, political willingness to promote the project is a crucial element. So many successful projects and developments can be linked to a political champion who has promoted the development and implementation. This tends to become muddled during election times but ironically this political focus often has positive ramifications, where otherwise inert government officials are incentivized to meet election deadlines.

Legal and Regulatory Framework: 
The next element is the legal and regulatory framework that allows for private sector participation. The Economist reported, in 2015 that in their analysis of 15 different African countries over 60% now have PPP-specific legal frameworks in place: South Africa, Kenya, Morocco, Egypt, Côte d’Ivoire, Tanzania, Tunisia, Cameroon, Nigeria and Zambia. Most other African countries have now prepared policy documents or they have draft PPP legislation.

A key assessment of private sector is the maturity of the public sector to interpret the legislation consistently and then to enforce these regulations in a manner that provides comfort to the long-term investor. Market perceptions provide a real measure for risk assessments and ratings.

One element in the legislative framework crucial to infrastructure delivery is the procurement process. Numerous delays and disputes that inhibit the final implementation could easily be avoided by Authorities adhering to sound and transparent procurement rules from the outset. The importance of overall enforcement and supervision is not fully appreciated. The level of corruption and its impact on communities cannot be understated.

Financial Viability and Funding:
Private sector investors often cite project financial viability as their sole motivation for involvement. Two aspects require attention specifically in the African context. Government guarantees of payments, especially at local level, do not ensure bankability. Secondly, predictions of fast economic growth do not imply quick returns. The concept that the growth of the population (above world averages) translates to easily viable projects (because there will be shorter payback periods thus offering the opportunity to generate higher returns) is a myth.

Funding is related to the investment climate. This, in turn, takes into account all the factors discussed – economy, political stability, social unrest, business confidence, legal and environmental maturity as well as the project specifics.

Technical Appraisal:
The most common aspect often delaying projects is the inability of both politicians and officials to select or accept the appropriate technology or simply the appropriate level of service to efficiently meet the realistic demands.

The level of over-design and adherence to inappropriate standards is often a clear indicator of the lack of experience. This is a tangible area where the private sector can substantially contribute by transferring skills and innovative solutions.

Institutional Capacity: 
The lack of institutional capacity of the public sector is often not perceived as the greatest risk to PPPs. Yet it is this capacity that is tasked with the conceptualization of the project to meet the demand, the selection of the appropriate solution and finally the administration of procuring the project and negotiating and supervising the implementation of a suitable solution. These tasks are crucial.

Experience in past projects is a good indicator. The private sector must assess this capacity at an early stage to avoid wasting resources. The public sector should seek the assistance of trustworthy and suitably qualified private resources and follow their advice.

Conclusion

In conclusion, there is no standardized solution for all countries in Africa. However, lessons learnt from successful partnerships with private sector internationally can provide a true sustainable mechanism to substantially meet Africa’s pressing infrastructure needs. There are many elements to attract private sector involvement but surely one factor that stands out as the priority and as the major contributor. Authorities must provide the public sector with an overarching framework and a system which creates an environment for long-term investor confidence. Addressing this priority will enable Africa to in turn address its infrastructure needs.

Contributor Profile
John Lotz is currently with the Group Five Development Division as the Head of Project Developments for Africa. He has been involved throughout the Continent in numerous developments of major buildings and infrastructure projects in the PPP market. His experience incorporates both the technical and the financial aspects. As a Professional Engineer, he worked both as a Civil Engineering Consultant and a Contractor on major projects. Later, as part of a DFI, he obtained extensive experience in the funding of infrastructure projects and the assessment of project risks.

This article was featured in the INTO AFRICA August edition, with focuses on Infrastructure Finance in Africa.