Infrastructure Development through PPP Wrestling with Twin Challenges

Infrastructure Development through PPP: Wrestling with Twin Challenges in Africa: - from Rhetoric to Reality P D Rwelamila Pr. CPM Graduate School of Business Leadership University of South Africa (UNISA) South Africa 0

Africa’s Infrastructure Plethora of Messes Most Deficient and Costly & Inadequate

The Agenda ü ü ü ü African Infrastructure – the context Importance of Infrastructure The African Infrastructure Situation – the facts Which way – towards sustainable delivery of infrastructure PPP as a funding method in turmoil PPP Challenges What about the twin challenges? Conclusions & Where to From Here? 2

ü Importance of Infrastructure Development ü There is abundant theoretical work on the contribution of infrastructure to output, productivity & welfare. Much of it is closely related to literature concerned with the macroeconomic role of productive public expenditure. For lack of sufficient time theoretical work is not presented here but coal-face developments ‘putting theory into practice’, forms the bulky of this presentation. Hence the need to cast an eye across the Emerging economies with a specific focus on the African continent (my home) by dissecting the physical infrastructure specimen. 3

Trade Forecasts by Region (Millions of Metric Tons) Region 2020 2009 Volume North Africa 20 West Africa 7 Central Africa 21 East Africa 45 Southern Africa 240 Total Africa Base 513 With suppressed 513 demand 235 176 43 96 408 958 1, 056 With new minerals 1, 175 513 2030 2040 Avg. growth Volume growth (%) (%) 6. 3 410 6. 3 760 6. 4 6. 7 300 6. 0 556 6. 3 6. 8 77 6. 4 145 6. 5 7. 1 181 7. 1 360 7. 1 4. 9 617 4. 7 1, 001 5. 0 5. 8 1, 585 5. 7 2, 823 5. 9 6. 3 1, 822 6. 1 3, 397 6. 4 7. 8 1, 998 Source: SOFRECO (2010) 5. 5 3, 630 4 6. 2

Forecast Air Passenger Traffic To 2040 Source: SOFRECO (2010) 5

Consumption Fossil & Hydro Primary Energy (in Million TOE) 6

Annual Growth Rate (%) & Increase in Demand (in GWh) COMELEC - Maghreb Committee for Electricity WAPP - West African Power Pool SAPP - Southern African Power Pool EAPP - East African Power Pool CAPP - Central African Power Pool 7

Projected International Bandwidth by REC & for Africa as a Whole Internat Africa ional bwidth 2009 (Gbps) 2015 -18 (Gbps) Growth factor 308 COM ESA SADC EAC ECOWAS CEEAC UMA 125 42 15 26 4 6, 000 3, 000 2, 000 800 50 50 80 20 24 Source: SOFRECO (2010) LLC 118 IGAD 6 500 1, 500 4 250 8 20 500 25

Infrastructure - Direct Facts (1) ü Inadequate infrastructure remains a major obstacle towards Africa achieving its full economic growth potential. ü Greater economic activity, enhanced efficiency & increased competitiveness are hampered by inadequate transport, communication, water & power infrastructure. ü The world is eager to do business in Africa, but finds it difficult to access African markets, especially in the interior, due to poor infrastructure. 9

Infrastructure - Direct Facts (2) ü Africa’s infrastructure is by far the most deficient & costly in the developing world. Generally, Sub. Saharan Africa countries lag behind their developing country peers, & the gap with Asia is widening over time. ü Some 30% of Africa’s infrastructure is dilapidated & in urgent need for refurbishment. And the prices of Sub-Saharan Africa’s infrastructure services are up to at least twice as high as other developing countries, due to diseconomies of scale and lack of competition. 10

Infrastructure - Direct Facts (3) ü Almost 50% of SADC member states are landlocked (7 countries) & require efficient regional transport links for access to the sea. ü In Malawi for example transport insurance payments as a percentage of the value of exports are pegged at 55% (UNCTAD 2014) ü 10% drop in transport costs could spur a 25% increase in total SADC trade (SADC 2014) ü Unless SA along with other SADC countries decide to invest in transport infrastructure, the chance of SADC rediscovering the winning formula & claiming a high-ceilinged place in the global market are likely to evaporate

Infrastructure - Direct Facts (4) ü Inadequate infrastructure in Africa is the single biggest threat to Africa’s long-term growth, hence representing a significant opportunity for investors to finance physical infrastructure asset such as ports, railway lines, toll roads, power stations, hospitals and broadband information communication technology (ICT). 12

Infrastructure Development Through a Variety of Approaches (learning from the coal face) ü There is enough evidence to suggest that the public sector has no need to own and maintain transport infrastructure, hospitals, schools and prisons. ü Traditional methods of procurement & funding of public sector projects within Africa have resulted in projects being delivered late and over budget, with little regard for longterm costs or value for money (-e. g. , a considerable percentage of paved roads is characterized by gaping cratersized potholes!!!) ü Projects could only proceed when central funding is available

Infrastructure Development Through A Variety of Approaches (learning from the coal face – Solution? ) ü PPPs are now one of the 3 preferred procurement strategies for public sector projects (Rwelamila 2015, Cartlidge 2006) ü Other two being Prime Contracting & Design & Construct (Cartlidge 2006, Rwelamila 2015) ü At the same time there is enough evidence to suggest that value for money is not lowest price; instead, it is to be found in the optimum combination of whole life costs & quality to meet users’ requirements ü Appropriate PPPs provides Africa an appropriate soln.

The Public Side of the Partnership & Marginalization of the Public üIn all emerging countries, the originality of PPPs raises new questions of governance: the problem of sharing economic, social, and political responsibility among various segments of society in the development of the country; and the adoption of new institutional forms to enhance the efficiency of government action. These issues are raised in both industrialized and emerging countries, but with more acuteness in the latter.

What are the Twin Challenges? üWhat Constitutes the Public Side of the Partnership - marginalization of the public üMulti-stakeholder Management - inappropriate stakeholder management approaches

The Forgotten Principal & Technical ‘Arrogance’ of Advisers Financial The Public: As Principal & Government (Client) : As an Agent Financial Advisers Legal Advisers Project Agreement Special Purpose Company Legal Advisers Specialist Advisers Principal Specialist Advisers Financed by Equity Long Term Debt Finance Subcontracts Design and Construct Contract Design Construction Subcontracts Operating Contract Operating Subcontracts

The Public Side of the Partnership & Marginalization of the Public üOne of the issues that emerge is whether the public wants the project. In addition if they are expected to ultimately pay back the initial financing that is invested in their name then they will also want to be assured of value for money (VFM) for what is actually provided. It also needs to be provided in a scope and form which meets expectations and needs.

Crying in the Wildness? üOne of the major challenges which have been facing PPP arrangements is public outcry in various countries – the public that PPP projects intend to serve is not accepting end results of initiatives.

Where to From Here? (1) üThe centrality of the Public Partnership – if PPP initiatives are going to take a central position in the provision of infrastructure for the betterment of the public, there is only one way, embracing the ‘CII: Real Position’, where the greater public becomes the real principal.

Understanding the Public in a PPP Environment Where: Ø P(a)i = Government/or public allied organisation = agent; Ø P(u)i = Public as direct users of facility; Ø P(p)e = Greater population public (non direct users of facility); Ø i = internal stake holders; e = external stakeholders. Position (CI): Position (CII): The Agent by default assumes the role of the principal stakeholder and marginalises other stakeholders The Agent and other stakeholders become ‘principal stakeholders’

Where to From Here? (2) üAn appropriate Multi-stakeholder Management Model - stakeholder management through the PPP project life cycle takes a systematic approach within each phase and under each activities cluster, where criteria is formulated, and appropriate tools or techniques are used to generate information and aid decision making.

It is Counter Productive to Assume the Ostrich Posture üTo do nothing is not an option

Conclusion Thank you 25