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Less Talk, More Action On PPP Needed

Less Talk, More Action On PPP Needed

While there is a great deal of talk about how the private sector could work with African governments to begin to roll back Africa’s huge infrastructural gap, very little in terms of regulation is actually happening. Finance, we are told, is not the problem; the problem is a lack of trust between the private sector and governments.

The debate over the best way to get to grips with Africa’s now desperate need for infrastructure build continues to rage. Even a superficial look at the problem highlights the fact that money is not the obstacle it’s often made out to be. Public and private financial institutions are queuing up with wheelbarrows full of cash for infrastructure projects that have solid public-private blessing.

So if the money is not the issue, what is? Well, to call a spade, a spade, it’s all about trust. Widely, throughout Africa, governments don’t trust private business, and the same applies the other way round.

However, the need for infrastructure, new and upgrade, is exerting so much pressure that an accommodation between business and the state is the only way forward, on a playing field on which one side has all the sovereign entitlements and the other all the skills. And hopeful sounds are emerging.

“African governments are subscribing to the idea of harnessing private sector skill and capital to meet infrastructure demands in their countries,” ventures Claire Barclay, a researcher at law partnership Cliffe Dekker Hofmeyr in Johannesburg, adding that “this is apparent from the various public private partnership regulatory frameworks being promulgated in Southern, Eastern and Western African countries”.

Barclay points out that PPP laws have been passed in the last few years, most of which remain untested. South Africa, surely the most likely candidate to champion infrastructure build in the PPP vehicle, has a lacklustre record even after eight years with a regulatory framework in place.

While money is not the problem, the currency in shortest supply is the will for the two sectors to work together.

Rule change needed

Arnold Ekpe, CEO of Ecobank, one of Africa’s big financial institutions, holds that public-private partnerships are vital if Africa is to get on with its infrastructure build, but that banks are limited in how they can help hurry the process along.

“Banks are sometimes asked to do what banks are not equipped to do,” he said. “We are equipped to provide financing, to look at projects and evaluate them, but we are not equipped to change rules and regulations and make projects happen. Only governments can do that. But governments, typically, have not changed the rules.

“And if they don’t change the rules and allow public-private partnerships to happen – rules in terms of contracting and in terms of enforcement of rights – we can’t expect PPP initiatives to work as well as they should. In fact, the issue has not been a lack of financing, it has been a lack of enabling environments for PPP initiatives to be effectively deployed.”

There is often little trust between the potential private partner on the one hand and the government partner on the other,” Ekpe observed. “Unfortunately governments in Africa sometimes have the reputation for going back on their word. If you’re going to do a 20-year PPP project and come with money and in that time there’s a change of government and the rules under which an investor expected a return have changed, you’re not going to do a second project in a hurry.”

Ekpe believes that a binding code of governments’ behaviour as the public partners could at least get the ball rolling. But who would write it and how it would it be regulated are other questions entirely.

Rowan Goeller, director of investments and concessions at South African construction giant Group Five, says that despite a long litany of promises not much has changed over the years. “We have been following the whole infrastructure issue for many years and it has been disappointing for the private sector. If you go back five years and read (former South African Finance Minister) Trevor Manuel’s speeches, they were full of infrastructure with very big numbers, but not much of it has translated into order book for the private sector and construction companies or otherwise. All that happens is that the numbers get bigger every year and they talk about the same projects, and those projects are still there and haven’t been done.”

Global port operating companies are itching to invest in infrastructure in South African ports. They lament that while discussions between local and foreign companies and the government have been going on for years, nothing concrete has materialised.

“From our group’s point of view,” says Jonathan Horn, executive at Danish AP Møller shipping giant subsidiary Safmarine, “there’s a lot of interest in becoming more and more involved in investing in the development and operating of South African port infrastructure.

This interest was initially expressed a number of years ago and I’m confident that the view of the group will not have changed. If the opportunity were there to participate in some form or another there would be a lot of interest.”

How much of the R50bn ($7bn) first phase budget for Durban’s new dug-out harbour would be met by government-owned Transnet’s balance sheet and borrowed money and how much by the private sector is unclear.

The business community has been angling for a slice of the freight logistics pie for years, and public-private participation in the R300bn ($36.2bn) final cost might be promising if comments by Transnet’s CEO, Brian Molefe, that “we are looking at the private sector to participate in the project” have the significance they suggest.

“There is an opportunity here for the private sector to both invest in the dug-out port project and also possibly be involved in the new port’s operations,” he says. “ This could be a public-private partnership. The private sector needs to play a role.”

But such pronouncements are nothing new. “We’ve heard it all before,” says a maritime services company executive who asked not to be named, “and nothing much has ever come of it.”
 
PPP building blocks

Cynthia Carroll, chief of resources giant Anglo American, says her organisation has already shown that partnership works, and while this journey still has a way to go, “the truth is that partnership is the only approach that works. The policy choices South Africa will make over the coming weeks and months will have a profound impact on the future of the mining industry”.

A bogey that keeps raising its head and one that has split policy makers in the ruling ANC-led tripartite alliance is the recurring call for the nationalisation of the mining industry. Increasingly, the call across Africa’s socio-political spectrum is over the critical role of the private sector in driving continental growth.

“Government commitments to cooperate with private enterprises in pursuit of national development objectives will generate significant gains if upheld,” maintains Kim Polley of consultants Africa Practice. “More specifically, Kenya and Uganda have both pledged to pass public private partnership (PPP) bills in the new financial year, which should pave the way for increased investment in infrastructure projects. Tanzania has already made considerable progress in this regard, with a regulatory framework in place.

Barclay proposes putting in place a few of the essential building blocks of PPP programme including the necessary institutional structures and arrangements for a regulator. “The diverse skill sets required to fully appreciate the mechanics of PPPs cannot be taught overnight. Burgeoning PPP units in Africa may consider seconding people with relevant skills from the private sector.”

Proponents of swift reparation to Africa’s wheel-spinning PPP environment hold that a  new kind of thinking is emerging as younger, more contemporary, minds engage with the risk, reward and responsibility of the development state, having everyone involved in building the country and sharing in the wealth created.

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Written by African Business Magazine

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