The Role of Public-Private-Partnerships (PPP) as a Procurement Strategy in Africa
COVID-19 has decimated fiscal reserves across the world, but more so in Africa. Even before the pandemic, African governments were struggling to attract investment in critical infrastructure. Public-Private-Partnerships (PPP) is one of the best procurement strategies available in the current financial climate.
A procurement strategy is defined as a medium-to-long-term plan by an organisation or institution to acquire the necessary goods and services; while optimising procurement costs, mitigating risks, and making the procurement process much less harmful to the environment (Procurement Management Process – The 2021 Guide). When it comes to critical infrastructures, such as water, energy, transport, housing, mining, health and education, PPP is advised as a procurement strategy suitable to governments. PPP will help governments achieve value for money (that’s efficiency, quality and affordability for users – see Asian Development Bank 2018’s PPP: Guidance Note on Procurement).
1) PPP as procurement strategy: the case of Africa
The sharp fall in oil prices between January and May 2020 has lowered government revenues, due to the Covid-19 pandemic and the transport and logistic disruptions. In several African oil-exporting countries such as Nigeria, Angola and Equatorial Guinea, oil represents about 65, 60 and 75 per cent respectively of fiscal revenue (Standard Chartered). In countries adversely affected by low oil prices, governments are likely to revise infrastructure financing commitments downwards in 2021. It was 37 per cent of total infrastructure financing commitments in 2018, or $37.5 billion, with a reported infrastructure financing gap of $93 billion per year (The ICA).
Hence, the traditional infrastructure public procurement or public sector option (PSO) has become less attractive. The PSO can still function if evidence from data suggests more value for money (Philippe Burger and Ian Hawkesworth). However, experience shows that it is challenging to deliver high-quality infrastructure using PSO as procurement strategy (Isabel Marques de Sá – World Bank-IFC’s Chief Investment Officer for Public-Private Partnerships).
To sum up, there is increased support for PPP as a procurement strategy to effectively finance and deliver on time key infrastructure investments across Africa. Sadly, PPP’s are typically poorly executed in African countries. Only five countries in Africa, namely South Africa, Morocco, Nigeria, Egypt and Ghana, has completed PPP projects over the ten years leading up to 2019, accounting for more than 50 per cent of all successful PPPs in Africa. (The African Development Bank).
2. Regarding the benefits of PPPs as a procurement strategy in Africa
a) On the public procurement costs optimisation
Improved management, increased technology usage and greater innovation potential are usually associated with the private sector (Asian Development Bank). Hence, PPP can potentially improve public procurement execution (e.g., projects delivered on time, and a practical budget monitoring and evaluation system in place). In other words, PPP promotes more efficient use of resources, and, arguably, contributes to better economic and social returns (World Bank).
b) On risk mitigation
PPPs allow risks to be shared effectively between the public sector and the private sector. For example, a 2006’s study by Li-Yin Shen and X.P. Deng, suggests that for a construction project:
- The government carries site acquisition-, legal- and policy risks
- The private partner has the design-, construction-, operational- and industrial action risks
- Both the government and the private sector takes the development-, market- and financial risks
c) On greening the procurement process
Government PPP units can promote their green agenda via learning or the transfer of skills; for example, by increasing the flow into stakeholders’ stock of knowledge in collaborative and sustainable procurement or ISO 20400 (City of Tshwane’s Sustainability Unit). Indeed, these skills will add value to the private organisation, the economy, society, and the environment (ICLEI).
3. Some policy prescriptions that can promote PPP as procurement strategy in Africa
a) Establish PPP units in all relevant government ministries working together.
b) Closing the country’s infrastructure data gap to improve the PPP procurement process via targeted interventions.
c) Procurement regulations should include incentives for companies to purchase goods and services locally (CIRDI).
This article was written by Hugue Nkoutchou and published with permission.
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