The Role Of Public-Private Partnerships In Africa

29 October 2013

Source: Ventures Africa

In September 2012, at The Economist´s Future Cities conference in Lagos, Nigeria, Mariam Yunusa, Project Leader for the UN World Urban Forum, succinctly summed up the importance of public-private partnerships (PPPs) and suggested one change to how we think about them.

"PPP needs to be changed to public-private people partnership (PPPP)," she said. "There is a third `P´ that should be added to that so it will succeed, because when the government and the private sector agree, [in conjunction with] social capital, that makes these kinds of agreements work."

In Africa, PPPs remain farreaching and widespread. To take one major example, the Southern African Development Community (SADC), a bloc of 14 countries, has, in th e past, frequently benefitted from the financial support of the Government of Canada through the Canadian International Development Agency (CIDA).

Describing CIDA´s strategy for PPPs in Southern Africa, the SADC Banking Association noted that these sorts of partnerships constitute "a new role for development assistance, aimed at facilitating private investment to and within the region."

They can leverage an economy´s existing strengths to help other sectors of the same economy or other economies in the region. The Banking Association believes that the partnerships with CIDA recognise the role that the advanced financial sector in South Africa can play in terms of strengthening capacities in the rest of the region.

The benefits of PPPs are plentiful, especially when it comes to powering growth within sub-Saharan Africa. They spur investment in human d evelopment and help secure basic utility services.

In the South African example, PPPs present opportunities for professional development of project staff, encouraging knowledge and skills enhancement. Besides this vocational empowerment, PPPs serve the public´s interests by spurring capacity-building efforts and creating a sound environment for the vital build-up of strategic infrastructure.

These benefits for a diverse group of stakeholders go hand-in-hand with the transfer of risk, both financial and operational.

Sikhumbuzo Gqoli, the former Head of Project Finance Desk in the PPP unit of South Africa´s National Treasury, believes that a reliable stress test of PPPs is seamless risk transfer. When outsourcing, governments typically buy specific services but retain the risk.

On the other hand, when participating in a PPP, governments genera lly buy complete services, which enables the project in question to go forward with the government holding minimal risk and left primarily to perform a regulatory function. Risk is transferred to the private party and state assets and liabilities are sold.

To determine the PPP´s affordability, an appropriate risk transfer occurs as well as a cost benefit analysis. Finally, Gqoli says, success becomes paramount with a charted exit strategy.

Development Banks Matter

In November 2012, at the 4th Annual Public Private Partnership Conference (APPC) in Nigeria´s capital, Abuja, the African Development Bank Group (AfDB) cemented its reputation as an important backer of future PPP projects, giving governments and professionals confidence that PPPs remain a viable platform in Africa.

The AfDB considers itself a key player as lender and advisor to African countries in supporting PPPs, particularly in establishing basic infrastructure essential for Africa´s economic development, such as transportation, energy generation and information and communications technologies.

In particular, the AfDB supports capacity-building and development initiatives of PPPs through the Tunis-based African Development Institute (EADI). EADI educates agricultural-industry players in how to achieve expert management - key for improving food security across the continent.

In 2012, it held programmes in Tanzania, Ethiopia, the Democratic Republic of Congo, Gabon, Zimbabwe and Mauritius. This year´s APPC will be held in December in Johannesburg, South Africa.

The Development Bank of Southern Africa (DBSA), established 30 years ago, is wholly owned by the South African gov ernment. The DBSA finances and advises on infrastructure and socioeconomic funding, its disbursements over the past five years equalling R35.76 billion ($3.59 billion).

Furthermore, it had a R4.5 billion ($452.64 million) impact on the nation´s GDP in the 2010-2011 fiscal year, according to the company´s annual report. Notable projects include a PPP public hospital in the Basotho capital of Maseru, the first of its kind in landlocked Lesotho.

A Build-Operate-Transfer (BOT) project, it is managed by the Tsepong consortium and led by the Netcare Group. The BOT agreement, signed in 2009, extends into 2017.

In its case-study analysis, the Trade Beat, a project of the South African Institute of International Affairs (SAIIA), noted several barriers at the outset of the project. How, for instance, was a PPP to operate top-down in execution, scheduling, and application in a field normally void of public and private cooperation?

Moreover, could a Basotho healthcare provider sustain itself? Significantly better options are available in the surrounding South African state - Bloemfontein is only 140 kilometres west by road, and flights to Johannesburg, located to the north, take less than an hour.

The superiority of South African facilities took on increasing relevance because South Africa has increased its HIV/AIDS budget by 500 percent during the presidency of Jacob Zuma.

As a number of treatment options became available for residents of Lesotho´s Maseru, patients became the true winners in the realisation of this particular PPP. Additionally, with the adult prevalence rate of HIV/AIDS in Lesotho sitting at 23.6 percent - the third highest in the world - the project inadvertently offered a complex PPP financial- modelling system.

The crux of the problem was the HIV/AIDS pandemic and the need to ensure that the quality of care was not compromised for those living in extreme poverty (surviving on less than $1.25 per day).

For those who could afford expensive antiretroviral-treatment therapy or a daily treatment pill, cost was not an issue, but rather convenience, which the multinational PPP framework provided.

At the International AIDS Society (IAS) Conference in Kuala Lumpur, Malaysia, held recently from late June to early July, invitees discussed the use of effective PPP models for prevention, treatment, care and support - in particular, service delivery and financing in sub-Saharan Africa.

Barbara de Zalduondo, Senior Advisor to the Deputy Executive Director for the Joint United Nations Programme on HIV/AIDS, said that progress in fighting the disease has occu rred in the "conceptualisation, implementation and measurement of social determinants and structural interventions available to support and enable HIV prevention and treatment programmes." But she highlighted the lack of investment in research and implementation of these approaches through PPP initiatives.

Taking Proper Care

As the Trade Beat report noted, the interested parties in the Maseru hospital´s BOT project had to do extra legwork in achieving the PPP´s policy parameters.

They also had to mitigate the negative connotations associated with the involvement of the International Finance Corporation (IFC) in the project, and with the formation of the PPP itself. Yet it has paid off so far.

"The facility is, for the moment, functioning smoothly. The barriers identified and the measures put in place to manage them have so far been successful . This is particularly true for the risk aspects of profitability and the capacity to pay for additional outpatients and referrals," the Trade Beat said.

The Queen Mamohato Memorial Hospital opened with 390 beds - plus a deluxe private patient unit with 35 beds - thanks to an initial grant of $6.25 million from the IFC and the Dutch and Swedish federal governments. The potential for substantial profits from the 35 deluxe-unit beds helped lure private partners to the project.

Between December 2012 and January 2013, the Global Partnership on Output-Based Aid (GPOBA) played an important role in the project´s completion. GPOBA pairs donors and international organisations in order to fund, design, demonstrate and document output-based aid approaches in improving the delivery of infrastructure and social services in the developing world.

A soon-to-bereleased case study on best practices and lessons learnt will include details on the successful execution of each stage of the hospital project.

According to the GPOBA, the document should offer practical dos and don´ts for donors, governments, NGOs, the private sector, and the independent verification process in similar healthcare PPPs.

The success of the hospital may have come as a surprise to some of its funders. It was not even four years ago that the project´s collaborators issued a baseline study which concluded that Lesotho lacked the expertise in hospital operations, financial oversight and systems analysis necessary to manage the PPP contract.

Ritva Reinikka, Director of the Human Development Group in the Africa Region of the World Bank, shot back by saying that a unique partnership between government and the private sector was transforming Lesotho´ ;s health sector, and that projects like the hospital presented a "truly exciting" opportunity as Africa looked for ways to reach the 2015 Millennium Development Goals.

During the infancy stages of the hospital´s construction, a multipronged effort by the government of Lesotho, the IFC resulted in a plan to make this PPP an example for the rest of sub-Saharan Africa to follow.

Until this time, unfortunately, the transcontinental or sub-regional application of PPPs to healthcare had fallen by the wayside, with little time left to spare in using them.

In its landmark 2007 report on `The Business of Health in Africa,´ the IFC clearly showed that the private sector would not be able to provide the majority of healthcare funds necessary for the continent to meet the target date of its Millennium Development Goals in 2015.

The enormity of a PPP on a scale large enough to meet the development goals - between $25 and $30 billion, by a conservative estimate - calls into question whether, logistically, it would even be possible to create a partnership with so many interested actors.

The IFC report recognised the challenges facing PPPs in sub-Saharan Africa. It hypothesised that harnessing the talents of the private sector would require new approaches to collaboration between public and private players and other stakeholders, as well as implementing strategies that better take into account realities on the ground.

Yet whatever the challenges, the report concluded, PPPs presented enormous potential benefits. In a utopia of successful healthcare PPPs, the public would have access to clean and potable water, basic sanitation and immunisations, and basic medical care including the treatment of non-communicable diseases. C itizens would also be educated to prevent the spread of pandemics.

There are several major hurdles to the effective advancement of PPPs in sub-Saharan Africa.Perhaps the greatest are the region´s autocratic dictators and self-serving private interest groups, and the multinationals that pillage natural resources. But there is also hope. Said the IFC report:

"The sheer size of the healthcare challenge facing sub-Saharan Africa has forced a reassessment of traditional approaches to addressing its needs. Governments, multilateral agencies and development [financial] institutions throughout the region have begun to accept that engaging and developing the private sector should be an important part of any overall strategy to improve healthcare."

PPPs are Working Well in Nigeria

In Nigeria´s water and sanitation sector, approval in January 2013 for a currently active programme promises to test output-based aid mechanisms in improving delivery and coverage in villages and plots adjoining urban areas situated between suburban and countryside locales.

This is in concert with the Ekiti state government of Nigeria´s recent announcement on 18 June of plans to apply for a World Bank loan under the auspices of the 3rd National Urban Water Sector Reform Project.

The project will be implemented in the state´s capital, Ado-Ekiti, located midway between Lagos and Abuja in the southwest part of the country. According to permanent secretary at the Bureau of Infrastructure and Public Utilities FE Daramola, the World Bank loan would directly help the people of Ekiti: "The desired outcome of the project is to provide good-quality water in a sustainable manner to the citizens of the state."

Some of the most positi ve stories of PPPs spurring innovation and growth are coming out of places like Ado-Ekiti. Take, for example, the state´s 13 June call for tenders under the Bureau of Public Procurement, for projects that could improve the lives of thousands of Nigerians.

Nigeria lacks infrastructure, and services such as building construction, general civil works, water engineering works, and mechanical and electrical engineering are vital.

For contractors, registration fees range between N50,000 ($310) for projects valued at less than N1 million ($6,210) and reach upwards of N350,000 ($2,175) for projects with a valuation of N1 billion ($62,100) or more.

These financial obligations to their partners in the Nigerian government are modelled on successful projects in Uganda. The private sector´s partnership with local governments through design and BOT utilises a neg otiated tariff against system output payments courtesy of the government.

On 29 April at the National Institute for Policy and Strategic Studies in Kuru, Nigeria, Kayode Fayemi, the governor of Ekiti, highlighted the Public Procurement Legislation and Public-Private Partnership Law that had recently passed in his state. He noted that PPPs utilised in the construction of water dams in Ekiti had enjoyed great success.

They increased water supply by 80 percent; improved the generation and supply of electricity, which led to rural electrification projects; and, by extension, jumpstarted urban renewal.

In Nigeria, 75 percent of the population works in the agriculture industry in one capacity or another, and the realisation of PPPs related to cocoa, cassava and rice production has empowered women and youth and generated revenue domestically.

For example, a par tnership with the UK-based multinational British-American Tobacco created a $1-million cassava cottage industry that provided 4,000 jobs for women and youth. PPPs have even funded overseas training in Indonesia and China.

Moving Forward

For PPPs to come full circle, the role of governments in specific partnerships needs to be redefined. The expected evolution will discourage African governments from serving both as manager and economic backer, a change that should help the public get more out of the partnerships.

Category: General

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