African Legal Support Facility examines the future prospects for PPP transactions in Africa
On 9 December 2020, the African Legal Support Facility (ALSF) convened a webinar to examine the weaknesses exposed by the pandemic, and the potential solutions and new trajectories for African governments. Notable speakers included Beatrice Florence Ikilai (Vice-Chairperson of the Bureau of the UNECE Working Party on PPPs), Mark Moseley (Principal at Moseley Infrastructure Advisory Services) and Dr. John Tambi (Chairman of the Office of The Special Presidential Infrastructure initiative in the Republic of Sierra Leone).
Conversations amongst the various panelists focused on the decline in public-private partnerships (“PPP”) investment, the options for governments to restore the PPP model and the role that PPP will play in the coming months. It was noted by each of the panelists that African infrastructure has historically struggled 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 is supported by various infrastructure reports which show that, even prior to the pandemic, the volume of PPP transactions in Africa has decreased in recent years.
During a vibrant and insightful discussion, three key themes and solutions were identified which could help to boost the role of PPP across the continent:
Improved regulatory framework and the reallocation of risk in PPP contracts
From a legal perspective, Mark Moseley noted that the most important thing is to ensure that PPP frameworks that have been put together in many African countries cover the full life cycle from the selection process, monitoring stages and development of the project. It was noted that countries need a clear framework on how the projects will be managed on an ongoing basis as well as on the standards that must be met throughout the life-cycle of each project. Importantly, the regulations should be appropriate to the sector which the project relates to and the institutions that enforce these laws and regulations need to be empowered to do so, working with government departments to discuss any prominent issues.
The risks associated with PPP can be unpredictable, Mark Moseley suggested that current contracts do not always deal with risk allocation in an ideal manner. He recognized that risk allocation is a key component of every PPP transaction, and that current contracts are too inflexible. It was noted that the current approach drives a divide between the public and private parties – even though they are meant to be working collectively to deliver the project on a long-term basis. As such, if PPPs are to become more flexible and collaborative, Mark highlights the need to examine the treatment of risks and ensure a more equal footing between each party to encourage greater participation in PPP projects.
Adopting a “People First” approach
Beatrice Florence Ikilai recognized the need for PPP to become more people-friendly. This involves a shift away from focusing solely on value for money to a “value for people” approach, which requires a focus on delivering desirable and necessary outcomes from infrastructure investment. The People-first Public-Private Partnerships approach developed by the United Nations Economic Commission (UNECE) looks at ensuring that each project is on improving the quality of life of communities, particularly those that are fighting poverty.
Beatrice noted that, according to UN figures, the financing shortfall for public infrastructure and public services has been calculated at circa USD 55bn per year. In her view, no other form of partnership other than PPP can make up such a magnitude. Therefore, Beatrice argues that there is a need for hundreds, and possibly thousands, of “People First” PPP that embrace the innovative solutions and technical expertise offered by the private sector, which will enable African governments to achieve their environmental and sustainability objectives.
Improving governments’ and the public’s understanding of the benefits of the PPP model
Dr. John Tambi noted that a clear objective to counteract the decline in PPP transactions should be to educate people on what PPP are, and to market PPP structures as attractive for the private sector to be involved with. If those at government level do not understand the process and preparation required, it is difficult for the time period for PPPs to be shortened. In order to shorten the process, John says the first step is to educate government departments on what is required. This involves thinking about what is involved, what the fall-back position is if the PPP fails and what is required to ensure a well-prepared project.
John also recognized the importance of having a PPP “champion” in the various regions as the projects in Africa are lengthy and complicated. He suggests that there is a misconception amongst government departments that PPPs involve “giving away the asset”, when in reality it is an important way of attracting financing and private sector talent. As such, John notes that it is useful to have an official in government who will push for progress in parliament and boardrooms to ensure there is a mandate to continue with the process and push the timeline. John noted that in Sierra Leone, for example, the government would like to educate the public and government departments about what PPP are, and to this end a PPP department was set up at government level in 2014.
Each of the panelists acknowledged that PPPs will continue to be an important hybrid solution as a way of building back in a stronger and more sustainable way after the pandemic. They recognized that PPP capacity-building is crucial as it will speed up the delivery of projects from inception to completion. By adopting some of these measures, African governments will be able to continue attracting private capital to infrastructure while creating much needed fiscal room for these countries to address multiple other demands, not least of which includes building the resilience of health systems’ and dealing with the continuing impact of the COVID-19 pandemic.