From the political base of Kenya in East Africa to Nigeria in West Africa, leaders vying to form the next government are pledging to boost infrastructure investment through public-private partnerships (PPPs). For more than a decade, many governments and multilateral organizations have invested heavily in creating PPP frameworks that provide a favorable environment for project implementation with the private sector. Despite huge investments, the progress made so far could be improved.
Why, after decades of investment, has the government failed to get it right? How can ambitious infrastructure promises be realized? The performance of many African countries calls for an urgent need to rethink how governments engage with and deal with private sector actors in the infrastructure sector. Unfortunately, if not resolved soon, the impact on people and the environment will be punitive and costly to fix. Below are my thoughts on what the government needs to change to attract private sector investment, especially from local sources.
First, we see a disconnect between government and private sector actors. The private sector is often poorly informed about government infrastructure plans. Although some governments make their project pipelines available to the public, some of that information is abstract and not sufficient for the private sector to make informed investment decisions. Governments can achieve better outcomes by speaking to private sector actors in a language they better understand. Governments can cluster infrastructure projects and promote them to specific groups best suited to participate in those projects. For example, if a government wants to build affordable housing in urban areas, these projects can be packaged appropriately and proposed to pension funds and savings and credit cooperatives that are already working on similar projects.
Second, local private sector actors are often not adequately consulted in the identification, selection, and prioritization of projects in government project pipelines. Governments invest little resources and time to better understand private sector interests and reservations, and therefore launch projects that generate little local private sector interest. A quick check of each country’s pipeline shows that the majority of projects cannot be financed by local private companies. This is because the necessary funds, required experience level, and technical know-how are out of their reach and automatically locked out. I think the government should carefully decide to include smaller projects that will help leverage and streamline the mega-projects that the government is implementing. These small-scale projects can serve as a springboard for local companies to enter the infrastructure sector.
Third, we found that many African governments have not yet created a conducive ecosystem to support private sector investment. This ecosystem could include a robust PPP framework, government support mechanisms, preparedness of production capacity, transparent procurement processes, or the rule of law. Africa will not be able to achieve progress unless governments are able to firmly address the challenges associated with corruption and lack of rule of law.
Fourth, I believe that governments need to empower the private sector to initiate and develop proposals for infrastructure projects in line with the government’s strategic objectives. The government could establish a special fund to not only support the preparation of infrastructure project proposals, but also reward and compensate the private sector for innovative proposals. Additionally, the government could encourage the establishment of infrastructure incubation hubs, such as the recently established Miundu Misingi Hub in Kenya. The hub promotes the creation of an ecosystem that supports the development of innovative and sustainable project proposals that can be funded and implemented by local actors. If properly incentivized, the private sector has the ability to develop new infrastructure proposals more quickly and efficiently.
Finally, it is important for governments implementing first-generation PPP projects to make intentional efforts to ensure the success of these pioneering projects. Achieving this may require concessions to some of the private sector demands in order to attract more players. From risk allocation strategies to support mechanisms, governments need to ensure they set a precedent that will make it easier for these projects to attract private investment on more friendly terms in the future.
African governments face many challenges, but by working wisely and transparently with the private sector, they can build the foundation for more innovative and robust infrastructure projects in the future. Private sector investment always pursues good projects in transparent markets that uphold the rule of law.
Disclaimer: The content of this blog does not reflect the views of the World Bank Group, its Board of Directors, staff, or any government representing the World Bank Group. The World Bank Group does not guarantee the accuracy of the data, findings, or analysis in this post.
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