Strengthening the Role of PPPs in Project Financing and Development in Africa

Published on 23 Feb 2023

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According to the World Bank, the term “People-first Public-Private Partnerships (PPPs) for the Sustainable Development Goals” (now shortened to “PPPs for the SDGs”) was coined in 2015 alongside discussions around the Addis Agenda. After adopting this agenda, the United Nations’ Financing for Development Office convened a session that shaped the discussions on guidelines and documentation of PPPs. At first, PPPs were used for risk mitigation exercises for the private and public sectors. However, they have morphed into a broader concept of structuring agreements which can have significant development benefits which, include actualising the SDGs for developing countries.

In Africa, PPPs have been instrumental in bolstering budgetary shortfalls in many sectors, including mining, infrastructure, energy, and telecommunications, especially after the recent global economic shocks. PPPs will be vital in most countries’ achieving the SDGs and attracting investment in their major economic sectors. However, there is a growing need for strengthening the role of PPPs as relevant questions have been raised over the model. Some of these questions are around accountability, transparency and an increase in the debt burden. To make the model resilient, governments need to formulate policies and regulatory frameworks that move away from the shortcomings of the PPP model. Below are some factors that could be crucial to reshaping PPPs for financing and development in Africa.

1. Establishing Strong and Capable Institutions
Most institutions in many African countries are used as political vehicles or to pursue political ambitions and conduits for corruption. This leads to the general public losing faith in the institutions that should guard their interests and provide services to them. The entire chain that involves the development and completion of a project through PPPs is similar and it should be foolproof. Most of the time multiple institutions are involved from procuring authorities, the supreme audit institution, and the central budget authority to the relevant sector regulators. These institutions should be able to run independently and be entrusted to carry out their functions. Efficient and capable institutions are elemental in making sure that policies and regulations are enforced. These institutions also help in the evaluation of new and existing regulations in order to enhance and make them as efficient as possible.

PPPs can be a powerful tool for delivering public services and infrastructure, but their success often depends on the strength and capabilities of the institutions involved. Some of the factors such as good governance, clear legal and regulatory framework and availing adequate resources to these institutions can be the catalyst to their success. – Amyn Mussa – Partner, ALN Kenya.

2. Enhancing Transparency and Integrity in the Budgetary and Procurement Process
Most African governments have had a challenge guarding against waste and corruption due to a lack of integrity in the procurement process. Additionally, those involved in the procurement process need more skills or the power to safeguard the different procedures leading to loopholes which are often open to exploitation. During the budgetary process, documentation should be able to disclose all costs and contingencies. Additionally, procurement contracts should be awarded based on merit rather than on relationship. Some of these agreements are quite lucrative and often lure persons with no track record in project development. According to COMESA, countries should ensure they have the institutional capacity to create, manage, evaluate and monitor PPPs. African countries need to make these adjustments to enhance transparency and integrity because financing has become hard to come by and alternative means of financing are sought after.

Transparency and integrity are crucial for ensuring the budgetary and procurement process is fair and effective. These virtues help to build trust and lasting relationships which go a long way in finding finances and technical support through PPPs for major projects. In addition, they are critical in ensuring that public funds are spent efficiently, effectively and in the interest of the public – Harriet Mdala – Partner, ALN Zambia.

3. Identifying the PPPs that offer Value for Money
Governments should ensure sufficient competition in the market through a competitive tender process. This can be done by having a structure that can create a functional market. Besides this, governments should also critically assess and measure the risk involved to prevent themselves from falling into a debt trap, this also requires a thorough risk assessment. Governments should transfer risk assessment to credible risk managers, who would also help select PPPs with the least risk. This will provide governments with a selection pool while creating an even playing field that will be inclusive and offer opportunities for non-incumbent players who want to enter the market.

Careful evaluation of the project and the partnership structure is important in identifying the PPPs that offer value for money. A thorough assessment is crucial to identify the partnerships that will have the best outcome for the public, and this must involve analysing costs, risks, benefits and value for money of the project – Olubunmi Fayokun, Partner, ALN Nigeria.

4. Incorporating PPPs into the Development Strategies
PPPs need to be more pronounced and normalised. One of the ways to do this is by incorporating this model into a country’s development strategy. Some countries can use this model to improve a country’s other developmental needs, such as affordable housing, feeder roads, educational institutions, and district hospitals, among others. This will offer some relief to countries’ budgets and could inevitably lead to a surplus, which could be injected into the following year’s budgetary plans. As an alternative financing option, PPPs could also help many countries to move away from borrowing, which has kept many African countries under a heavy debt burden. Incorporating PPPs could also enable governments to cut unnecessary spending which could significantly improve the financial health of the country and ultimately improve a country’s economy.

PPPs have the potential to be a catalyst for developing countries to achieve their SDGs while reducing their dependence on financial aid which elevates their debt burden. Despite this, PPP as a model should be safeguarded to make it as effective and its impact as far-reaching as it can be. In summary, if properly used, PPPs can lead to increased investment, long-term sustainability, increased competition, improved efficiency and transfer of technology and skills. Additionally, effective regulation, transparency, and oversight must be in place to ensure that PPPs deliver benefits for all stakeholders.