PPP’s could lead the way in helping accelerate development in sub-Saharan Africa

PPP’s could lead the way in helping accelerate development in sub-Saharan Africa, says Deloitte.

Johanessburg, 24 October 2011 - Although the Public Sector in sub-Saharan Africa is increasingly realising the potential value that Public Private Partnerships (PPPs) offer to meet the challenges posed by infrastructure project development, several key areas have to be addressed if these potential relationships are to be effectively utilised for the benefit of citizens, says Deloitte.

Andre Pottas, Infrastructure Advisory and Debt Advisory leader at Deloitte for sub-Saharan Africa, says that across Southern, East and West Africa the advantages of PPPs are becoming more broadly accepted by government. The point has been reached, he says, in a number of administrations where dedicated PPP units are now operational or in the process of being formed.

“Although there has been substantial progress in breaking down the traditional barriers between the Public and Private sectors on the continent, there is still a need for work to be done on three key areas if the infrastructure challenges of Africa are to be met. These areas are efficiency, capacity and stability,” says Pottas.

Efficiency and governance in selection of projects

“In order for efficiency to be improved, attention has to be paid to the selection of projects for action. This applies within individual government departments and across government departments. For example, within the Department of Transport, the decision may be whether to build a new toll road or a new airport, while at national level, the decision should be whether to build a hospital rather than either the road or the airport. As portfolio management skills and methodologies are not yet well developed, the ability for centralised identification and prioritising of projects can be ineffective. This could lead to money being spent on projects that are not necessarily the most important from a national infrastructure investment perspective.” To address this concern, some countries are starting to put in place a centralised national capital projects oversight unit.

Once a project has been selected, especially if it is multifaceted and complex, the need for project governance capacity then becomes a priority to ensure delivery efficiency in project procurement and implementation. During the service period it is essential that the correct contract monitoring processes be put in place to ensure that delivery is effective, that it meets delivery criteria and expenditure is continually monitored in order to achieve the envisaged benefits.

Increasing capacity for better delivery

Increasing internal capacity in the Public Sector is vital to increase the ability for the delivery of projects. Here the private sector can play a part in a number of ways, says Pottas.

“The first option is to temporarily place experienced personnel into the public sector from involved private sector companies. These people can then effectively provide training ‘in-house’ around core project management disciplines and simultaneously help build skills This private sector support can then be reduced as skills in the public sector increase and are assimilated.”

“A second option is to broaden the role of the national capital projects oversight or PPP unit, to provide centralised, experienced project management and governance resources to the project. A common problem is that a government department may only do one major PPP project within the career span of any one individual. If projects are managed at this local level, then each time a project is undertaken, the department is effectively starting from scratch, as the institutional experience from the previous project has been lost.”

Stability of the project environment

The third element requiring attention is stability of the project pipeline and stability of the project environment for individual projects.

Given the size and complexity of these projects, it is important to maintain an ongoing pipeline of projects to ensure that private sector expertise is continuously employed. As an example, in the run-up to the 2010 FIFA World Cup, South African construction companies geared up and staffed up to meet the demand for World Cup infrastructure. Since then, however, the pipeline has slowed, leading to now well-trained resources being underutilised or moving to projects overseas.

At the individual project level, stability is also important. This issue has received a lot of publicity recently with a number of projects on the Continent being delayed, suspended or cancelled, at various stages in the project life-cycle.

The process in many administrations requires shortening. There is often a significant time lag between a call for proposals, the awarding of a tender and actual contract commencement. In many cases, this period is so long that bidders have moved on to other projects by the time a decision is taken. The process then has to be reinstituted. On complex tenders, decision making and project negotiations can be so drawn out – sometimes over years – that the material on which the original tender was based is outdated, equipment has changed or costs have shifted significantly.

A further risk is where the project preparation timeline stretches across political terms, resulting in the appointment of new political heads or administrative functionaries under the incoming administration. The new appointees then need to spend time becoming familiar with the project history, status and previous administration’s decisions, further delaying the process, or may have different strategic priorities, leading to a re-scoping of the tender requirements or sometimes even the cancellation of the process. This can be very frustrating and expensive for bidders, given the significant time and cost commitments in bidding for these large and complex projects. Such delays or cancelation of projects also reduces the private sector’s appetite to take part in PPP projects.

“Finally, political and policy stability over the long-term is also important, given that a PPP concession often runs over a 20 to 30 year period,” says Pottas. “Funders need to be comfortable that once awarded, the concession and associated revenue stream is guaranteed for the full funding repayment period and will not be affected by political policy changes.”