Public Private Partnerships – tapping the potential to prevent another meltdown and restore growth
By Ian Petherbridge, consultant at Thomson Wilks Attorneys in Umhlanga, KwaZulu-Natal.
The UNCTAD World Investment Report estimated in 2014 that developing countries faced an infrastructure investment gap exceeding US$1.6 trillion in the period up to 2030. Namibia is no exception and similar to its developing peers, faces enormous financing hurdles in the ongoing process of providing new and improved local infrastructure.
As available funding from traditional sources remains limited, impeding the capacity in the public sector to implement several projects simultaneously, governments have found that partnerships with the private sector pose an attractive alternative to increase and improve the supply of infrastructure. The opportunity to partner with the private sector to realise much needed upgrades to infrastructure or construct new infrastructure, has become a policy priority of the Namibian Government.
The effects of the recession and the continued need for the Fiscus to bail out State-owned Enterprises, severely limit the resources available for capital investment in infrastructure. It is at this juncture that the government should turn to the private sector and request it to collaborate on constructing and upgrading infrastructure in on a public private partnership basis.
Public Private Partnerships (PPPs) are a mechanism for governments to procure, implement, and manage public infrastructure and services projects utilising the resources and expertise of the private sector. PPPs combine the skills and resources of both the public and private sectors through sharing of risks and responsibilities. This enables governments to focus instead on policy, planning and regulation by delegating day-to-day operations.
There is no universal definition for PPPs. Based on the definition provided by the Public Private Partnerships Reference Guide, V 2.0 (World Bank 2014), as a broad concept to be applied both to new or existing infrastructure and services, a PPP may be defined as: “A long-term contract between a public party and a private party, for the development and/or management of a public asset or service, in which the private agent bears significant risk and management responsibility through the life of the contract, and remuneration is significantly linked to performance, and/or the demand or use of the asset or service.”
Despite the advantages that PPPs bring, the engagement in PPPs across the Sub Sahara region remains small and concentrated only in a few countries, such as South Africa, Uganda and Kenya. This may be as a result of bad experiences in the past due to ill-prepared PPPs or even PPPs undertaken with less-than competent PPP project sponsors.
PPPs can provide relief from the costs of design and construction for the Namibian Government. The government, by involving the private sector in projects will have a partner that is focused on maximizing profits from operating and maintaining the infrastructure that has been upgraded or newly constructed which will ensure that there are greater efficiencies throughout the lifecycle of a PPP.
The private sector in turn would also be required to employ persons to undertake and perform its obligations in respect of the PPP. This in turn will have the effect of relieving in part the enormous unemployment in Namibia. Another benefit is that it will also have the effect of generating tax income for the Fiscus, deploying technology, upskilling employees and procurement of goods within the local market. If implemented correctly, PPPs will stimulate more downstream activities in the broader economy.
With the credit agencies downgrading Namibia’s credit status, the servicing of debt has become more expensive, which may become a deterrent for the Namibian Government to borrow foreign funds to undertake large infrastructure projects. Investors are also not willing to extend themselves where a country’s rating has moved a notch down, due to the credit risk. Local partners may however have the ability to source cheaper funding than the Namibian Government due to their credit risk and willingness to extend themselves when presented with an opportunity to participate in a PPP.
Namibia is well placed to implement PPPs given that the necessary legal framework has been created under the Public Private Partnership Act, 2017 and a PPP Unit was established for the purpose of providing analytical support to the Ministry of Finance and the PPP Committee.
State-owned enterprises are particularly well-suited to partner with the private sector under a PPP, because one of their objectives is to generate profits for the government. The possibility of establishing an extensive PPP framework and network, in Namibia’s case, can start with the State-owned Enterprises, and from there move to larger projects that are typically the domain of the central government.