A bright future for PPP in East Africa – Part 2: Key challenges and regulatory reform
Our recent post, A bright future for PPP in East Africa – Part 1, set out market observations gleaned at the PPP Risk Allocation Workshop recently hosted by Norton Rose Fulbright (NRF) and the Global Infrastructure Hub (GI Hub) in Dar es Salaam, Tanzania. Some common challenges consistently emerged across countries, which we examine below.
Clear legal framework
Lack of a clear legal framework and delays in effecting amendments are issues in certain countries, such as in Kenya, where national and local regulations were inconsistent.
Lack of capacity
Some countries have turned for assistance to international organisations such as the World Bank, African Legal Support Facility (ALSF), PPIAF, and the Institute for Public Private Partnerships. Capacity constraints may even hinder feasibility study initiation, or concession negotiation.
Financing the preparation of PPP projects
Feasibility studies can be prohibitively expensive. Donor funding has been invaluable in unblocking this bottleneck. Malawi has obtained funding from the ALSF, which can also fund technical and financial advisory work as well as legal advice. PPP projects in Zanzibar have also largely been underpinned by external funding from the World Bank. Nonetheless, DFI support can present its own challenges: IFC requirements have increased expropriation payments and driven up project costs. Financiers’ demands have also been known to create challenges, where requirements for guarantees in order to achieve bankability have limited the uptake of PPPs. The absence of dedicated PPP funds has also led to non-PPP projects being prioritised at times.
Individual non-performing projects can negatively impact public perception of PPPs. These perceptions can remain even when the environment changes and lessons learned have been incorporated.
PPPs have suffered negative public perception in a number of countries, some people labelling them a form of privatisation that deprives people of land and rights. The Malawi PPP Commission has taken proactive steps to develop a strategy to increase public awareness and information on PPPs including going to different city assemblies and taking interested stakeholders through PPP projects.
Low government awareness and understanding of PPPs
Poor understanding of PPPs or a sense of reluctance to relinquish ownership at government level has limited the number of projects procured through PPPs; misconceptions include that that the private sector takes all the risk in demand risk projects such as toll roads.
PPP projects are undeniably complex with numerous stakeholders, meaning that PPPs can suffer long timescales and protracted processes. These long timescales can lead to impatience and withering interest.
Secondary approvals can delay PPP projects even further. Zambia has sought to address this issue through an Amendment Bill to streamline the process.
Viability gap funding
The viability of PPP student accommodation projects has proven to be problematic, with students unable to afford the fees. In Malawi, government support by way of viability gap funding was seen as necessary to support such projects. Similarly, low traffic volumes in toll road projects have remained problematic, where assistance from development partners may be necessary until the concessionaire breaks even.
Land acquisition and rights
Land acquisition and rights are problematic in several countries. A government inability to acquire the land may deter international investor interest in PPP projects. The Ugandan PPP Unit is currently undertaking stakeholder consultation on the amendment of the constitution in respect of land rights.
Standardisation of project documents
Lack of standardised concession agreements was noted as a concern in some countries. Standardisation of PPP project documents might well encourage private sector investment and it is hoped that the contacts made between the PPP units at the Dar es Salaam workshop will help foster a level of regional consistency.
The Inside Africa team would like to thank Chloe Taylor, Trainee Solicitor, for her contribution to this blog post.