PPPs is what Africa needs for infrastructure development

24 Oct, 2021 - 00:10 0 Views
PPPs is what Africa needs for infrastructure development

The Sunday News

Tendero Bangure, Correspondent
INFRASTRUCTURE development in Africa is essential. It is key to modernising and boosting other productive sectors and ensures efficient provision of social services to the less privileged.

Africa therefore needs to continue revamping its infrastructure in the area of road networks, railway lines, hospitals, training institutions so that it closes the gap between rural and urban communities and calls for effective Private Public Partnerships (PPPs) that drives development are growing louder.

A workshop attended by the African Development Bank (ADB), Development Finance Institutions, the private sector and professional associations in September 2020 indicated that five African countries (South Africa, Morocco, Nigeria, Egypt and Ghana) accounted for more than 50% of all successful PPP activity from 2008 to 2018. Several other countries have multiple PPPs in the pipeline– Burkina Faso has 20, and Botswana has eight.

It was pointed out that before the Covid-19 pandemic, Africa was already struggling to structure projects tailored for the private sector and at the same time achieving value for money for the public sector including affordability for users.

This has however, been worsened by the ongoing pandemic. The African Development Bank has estimated that Africa’s infrastructure needs financing of up to $170 billion a year by 2025, with an estimated financing gap of up to of $68 to $108 billion a year.

PPPs can be the key element in narrowing this gap by crowding in private sector investment in infrastructure and the African Development Bank is playing a critical role in scaling up that effort.

With the global economic crunch that has been worsened with Covid-19 pandemic, it is imperative for PPPs to be embraced for development as they improve the procurement of construction works within the public sector while at the same time encouraging greater efficiencies within the industry as a whole.

A key advantage of having the private sector provide public services is that it allows public administrators to concentrate on planning, policy and regulation. The private sector, in turn, is empowered to do what it does best, and in particular improve the efficiency and quality of service.

When PPP procurement is applied for the right project and within the right environment, it can produce a win-win situation for both the private and public sectors.

It is however, important to indicate that this procurement route may face some public opposition grounded on false premise that there is a choice between conventional procurement and PPP wherein the public sector does not have the budget capacity to undertake the project and such a comparison is misguided.

PPPs financed by the private sectors allow the spreading of the project cost for the public over a longer period of time, in line with the expected benefits. Public funds are thus freed up for investments in sectors where private investment is impossible or inappropriate to incur benefits that may allow the repayment plan.

There should be clear distinction between the financial source of investment that could come from the private sector in the form of debt or (to a lesser extent) equity and the source of revenue that will pay back the investment and must come from the taxpayer and/or service consumption.

Increased funding is only achieved if additional sources of revenues (principally user charges) are mobilised or if PPP investment is considered off budget for the purposes of public accounting. However, in the latter, although the investment is not considered as a public debt, subsequent payments under any arrangements should reduce available public budgets for the duration of the PPP contract.

However, being that provision of public service is a priority, the public sector benefits on the provision of service earlier and may collect some revenue that may be used to provide public budget for other projects. The other benefit is employment creation and subsequent improved standard of living.

PPPs need to be considered where it offers clear value for money and more appropriately for large projects, that have significant ongoing maintenance requirements.

The reimbursements of costs to the PPP contract will not normally commence until the work is finished and is operational and the transfer of the project to the public service entity is done on a maintained operated on profit project.

Obviously if the PPP contractor performs inefficiently then the payments may not be sufficient to cover its costs and generate any profit, and that is the risk the contractor takes.

PPPs allows for innovation in waste management and project delivery as the private sector requires to be reimbursed from revenue generated from the project, chances of white elephant projects are minimal and an increase in projects completed on time and within agreed cost would be witnessed.

To ensure functionality and profitability, PPPs constantly upgrade methods of construction and the service provided is up scaled to ensure maximum benefit.

PPPs can also serve as a catalyst for public reforms and may inform conventional procurement policies.

The government may thus benchmark the services provided by government agencies and the projects may inform budget estimates for other projects of similar nature and also indicate the whole life cost of the facility including operation and maintenance costs.

It is worth noting that PPPs will be effected for both construction, operation and maintenance as their reimbursement of investment is during the operation and maintenance period.

Public Private Partnership agreements have the capacity of bridging the fiscal funding gap. With the current global economic slowdown and the backdrop of the ongoing Covid-19 pandemic, PPPs provides a better alternative to funding the much-needed infrastructure development.

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