Infrastructure scale-up will require a much greater focus on public-private partnerships (PPPs). African Governments need to be in the driving seat when developing PPP strategies. A Governments’ continuous commitment and adequate capacity during the preparation, the bidding and the execution phases of projects are key and especially important in regional projects where coordination issues are complex.
With few exceptions, local capital markets in Africa are currently not suited to financing transport infrastructure and mismatched to debt tenors which are on average only 180 days in Sub-Saharan Africa, with a maximum of 3 to 5 years in certain markets. High transaction costs are also hampering the development of an efficient market. For example Kenya Telecom – a sub-LIBOR borrower – would have to pay 7% transaction costs to access the capital markets.
Governments need to develop an equity market first, and then develop the debt side. The success of the Kenya stock exchange which has grown from 45,000 to 1 million investors in 3½ years is testament to local appetite. Development Finance Institutions continue to have an important role to play in market development and risk mitigation under PPPs.
Enabling Environment Governments are responsible for the private sector enabling environment. Legal and economic stability, especially where there is ‘regime change’, are crucial to enable risk to be priced appropriately and for deals to be sustainable.
Transparent and predictable regulation are also a key factors in attracting private investment in regulated infrastuture segments.
Risk Engaging with the private sector early in the project lifecycle to ensure clarity on
project scope and boundaries is essential to appropriate risk allocation and fair pricing of infrastructure service provision.
The payment risk for the private sector is a key financial sustainability issue. New guarantees now exist to compensate potential payment state breaches in case of state compensation subsidy.
Expectations risk is often high when the private sector takes over concessions characterised by years of public-sector under investment. Effective partnerships based on open dialogue are important as well as appropriate communication to stakeholders about private and public respective commitments under PPPs.
Sustainability Infrastructure needs to be sustainable. Expenditure in Africa on maintenance of
public assets is far below what is required to sustain the present network,