Africa ought to focus on sustainable PPPs

BusinessDaily

What you need to know:

The value for money requirement is very key if at all Africa is to implement sustainable PPPs.
Africa’s PPP strategy has to be cognizant of the inherent limitations of the African market.

Many reference guides, including the APMG PPP Certification Guide describe Public-Private Partnership (PPP) as a long-term contract between a public and a private party for the development or significant upgrade of a public asset and/or potential management and operation of public service.

The long-term nature is an essential feature of PPP contracts aimed at ensuring efficient transfer of risks and obligations to the private party who is best placed to manage and execute them respectively at the least cost possible. It is also to enable the private party to sustainably recoup their investment into the project.

Additionally, the private party is required to bear significant management responsibility and risks through the life of the PPP contract. Caution should, however, be exercised so as to ensure optimal transfer of risk to the private party as maximum transfer dilutes the value for money indicator of sustainable PPPs.

Although not a necessary condition, the private party in the PPP contract is also required to provide a significant portion of the financing for the project.

A quick review of the African PPP pipeline indicates how ambitious most governments are. With no proven track record, commitment and experience in driving PPP projects, unless an efficient government support mechanism is in place, raising financing for those projects will be expensive if not unachievable.

Which way forward for Africa?

The value for money requirement is very key if at all Africa is to implement sustainable PPPs. PPP should only be used to finance infrastructure projects where there is proven evidence that it is going to generate more benefits than if the public investment route was chosen.

For this to be achieved, Africa’s PPP strategy has to be cognizant of the inherent limitations of the African market. Immediate focus should be channeled towards identifying and implementing relatively smaller and impactful projects at the sub-national level with a long-term focus to manage large infrastructure projects.