In the past five years alone, it has produced nearly half of the world’s twenty fastest growing economies: a commodity super cycle, urbanisation and a growing middle class have attracted substantial investments to the region. However, Africa’s infrastructure capacity poses a significant risk to the sustainability of this growth. The Africa Infrastructure Country Diagnostic (AICD) estimates that the infrastructure needs of Sub-Saharan Africa alone exceed US$93bn annually over the next ten years. According to the same estimate, less than half that amount is being provided.
Public-Private Partnerships (PPPs) are emerging as an important tool to bridge this gap. By bringing together financing, operational experience and know-how from the private sector and institutional clarity and transparency from the public sector, PPPs can help to address Africa’s infrastructure needs.
The Economist Intelligence Unit has been conducting research on PPPs since 2009 through the Infrascope series. The Infrascope—a benchmarking index assessing countries’ enabling environment for the design and implementation of successful and sustainable PPPs in the water, transport and energy sectors—has now been extended to include fifteen countries in Africa: Angola, Cameroon, Côte d’Ivoire, the Democratic Republic of the Congo (DRC), Egypt, Ghana, Kenya, Morocco, Nigeria, Rwanda, South Africa, Tanzania, Tunisia, Uganda and Zambia.
The Infrascope assesses countries across six domains: (1) their legal and regulatory framework for private participation in infrastructure; (2) the design and responsibilities of institutions that prepare, award and oversee projects; (3) governments’ ability to uphold laws and regulations for concessions, as well as the number of past projects and their success rate; (4) the business, political and social environment for investment; (5) the financial facilities for funding infrastructure; and (6) the quality of subnational PPP frameworks (such as counties, local governments, or provinces). These domains capture the most critical phases that most PPP projects must undergo and when combined, they offer a lens through which to assess the overall quality of the PPP environment.
The 2015 Africa edition saw South Africa top the rankings as the only “mature” PPP environment. All other countries were ranked as “emerging”, with the exception of the DRC, the only “nascent” PPP environment. Our research revealed a number of challenges. PPP laws are often stronger on paper than in practice and relevant institutions at times lack the resources and independence to fulfil their mandate: operational maturity is lagging, highlighting limitations in public capacity to effectively produce tenders that meet satisfactory project awarding criteria around risk, value for money and renegotiations and expansions. Only a few countries have experience with more than a handful of PPPs, many of which were awarded before the adoption of comprehensive PPP frameworks, meaning that newly introduced best practices were not always implemented.
Over the last decade, many African countries have enacted PPPs through ministries (energy being a prominent example) and subnational bodies. While this is a positive development, the passing of legislation introducing centralised PPP frameworks is creating challenges in the harmonisation of PPP regulations both at the subnational level and across ministries. Furthermore, despite significant political backing in the majority of countries, support of PPPs among general populations remains mixed, mostly undermined by memories of past privatisations and unpopular decisions over tariffs, tolls and fees.
While these results suggest that much improvement is still needed, some positive trends have emerged. Most African governments are actively building PPP frameworks: ten out of fifteen countries have PPP-specific legal frameworks in place and, of the remainder, three have PPP laws under policy development or moving through the parliamentary or presidential approval process. The existence of a clear regulatory framework is an important signal for investors, particularly in markets with limited transaction experience and higher levels of political risk. Secondly, significant progress has been made in the development of central PPP units, now present in twelve countries out of the fifteen in the Infrascope analysis. PPP units, special bodies within government administration or development agencies, can generate better coordination, increased efficiency and a clustering of relevant skills in a single place.
Many of the challenges to PPP uptake mirror general challenges of doing business in Africa: political risk, legal uncertainty and lack of transparency. However, the PPP project cycle has specificities and requires extensive knowledge of financial planning, commercial law and project management, among others, adding an extra layer of complexity to investments. As a result, whilst the potential benefits of PPPs are clear, successful implementation is a hard task. Fostering the PPP environment will require PPP-specific reform design and implementation such as legal reform and development of specific technical skillsets in government. However, general measures to strengthen the business environment will be equally critical to offer investors the needed confidence to make the long term commitments needed to sustain Africa’s infrastructure growth.
The views and opinions expressed in this article are those of the authors and do not necessarily reflect the views of The Economist Intelligence Unit Limited (EIU) or any other member of The Economist Group. The Economist Group (including the EIU) cannot accept any responsibility or liability for reliance by any person on this article or any of the information, opinions or conclusions set out in the article.
