Private Public Partnerships (PPPs) – critical to harnessing private investment

Following on from our previous infrastructure posts: Leveraging resources for infrastructure development in Africa and Resource corridors, infrastructure development and private investment, we take a look at the role of public-private partnerships in harnessing private investment in infrastructure.

The infrastructure deficit is often noted as having a massive impact on the continent’s development and growth, with infrastructure highlighted as a key area requiring investment. The 23rd World Economic Forum has a central theme of Delivering on Africa’s Promise, and has infrastructure as a dominant and recurring topic for discussion.

African project finance

As leaders grapple with struggling economies, over-reliance on foreign aid and unstable tax bases, public-private partnerships (PPPs) are increasingly used for African project finance.

PPPs are contracts between a public sector institution and a private party to provide a public service or fulfil a public need through governmental and private cooperation. The private party assumes substantial financial, technical and operational risk in the design, financing, building and operation of a project, while the public entity provides political and policy support.

In many cases, ownership of a project reverts to the state after a predetermined period.

PPP examples

Both the Maputo Port development project and the new N4 toll way are examples of PPPs that have had a significant impact on galvanising local growth. According to Hugh Boylan’s analysis of Infrastructure-related PPPs in Africa,

increased traffic on the [N4] road has facilitated greater private investment in Mozambique. Increased investment from China, India and Brazil is on the Mozambican economic horizon.

Those countries rely on the MDC and port infrastructure for exporting, among other things, aluminium and coal. Growth rates in Mozambique are expected to remain healthy in 2012, facilitated by private consumption, public investment financed through non-concessional loans, private investment addressing huge infrastructure deficits in transport and energy, and the beginning of coal exports.

PPPs along the development corridors are expected to absorb all fiscal space through to 2013, favouring large foreign investments linking extractive areas with the coast. The Mozambican government has also benefited from a well-timed change in tax policy, increasing its customs collection in 2010 (though foreign companies receive better tax-breaks than domestic firms). Agriculture and SME jobs are expected to benefit through spill-over effects along the development corridors.”

Do you know of other examples where PPPs have been used successfully to finance a project? 
David Okwara

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