Addressing Africa’s infrastructure deficit

While African governments can look to domestic sources of capital, as well as international development partners such as the WBG and the African Development Bank, there are also a significant number of international players looking at the African continent for places to invest into properly structured projects that offer a reasonable rate of economic return, particularly when they involve public private partnerships (PPPs).

Governments’ contribution to PPPs create different types of fiscal commitments, the nature and extent of which depend on the actual projects themselves, as well as the broader market conditions. Clearly, though, such deals also give rise to implicit liabilities, and that is why it is crucial that the accounting for these commitments is properly understood through rigorous project planning and due diligence, so that governments fully understand the full cost of infrastructure delivery. Budgeting appropriately for a PPP is also important for the reputation of a PPP programme, and also instils confidence to private sector partners.

Key to this process is ensuring that good-quality cost-benefit analysis has taken place. At EY, we have worked closely with governments around the world to develop cost-benefit frameworks that ensure the economic and social benefits of any infrastructure project are properly understood at the outset, and that governments can make informed infrastructure investment decisions and rank and prioritise investment.

Every project can go through this screening process, and it helps a country’s finance ministry by serving as a filter for what can work and what is not likely to work. It also helps bring together people with financial, commercial and technical experience, all of whom are needed for a project to be effectively funded and delivered. Analysis should also include the wider economic benefits of a project.

There is a big appetite for this because it allows a government, which is likely to be capital-constrained, to be fully confident in where it is investing and where it can expect to receive the best economic return.

The ministry of finance has a pivotal role to play by accepting overarching responsibility for the PPP framework’s implementation. It needs to oversee the governance of the project as a whole, with support from specialists from the technical and legal departments — not recreating what they do, but rather making sure that the teams are working together.

If a ministry of finance is not properly engaged, there is more likely to be a lack of coordination among government entities, as well as little or no progress in moving projects through to procurement and implementation phases.

However, while PPPs clearly offer an important route forward, it is also important for policy-makers to be aware that they should not be applied to each and every proposed project. In essence, a PPP is a contractual arrangement between government and the private sector, and every project is different. It’s not a case of one size fits all and there is no PPP policy that could or should cover everything. PPP provides a government with a number of different procurement options to address its infrastructure investment. Rather than drilling into the minutiae of each individual contract, governments should instead concentrate on those projects that have a strong up-front business case and then focus fully on the completing the projects themselves, because the potential rewards are huge.

If governments across Africa succeed in working with the private sector to ramp up the levels of investment, it would be transformational on so many levels. Effectively addressing the infrastructure gap – a task that has faces African policy-makers for generations – would make economies fully functioning, strengthening the transport, power, health, education, water and sewage sectors, improving quality of access for all and significantly increasing economic capacity. It would also give countries wider access to their large natural resource deposits, enabling them to export them on a much more efficient basis to resource-hungry countries such as China and Japan.

That so much has been achieved across Africa in the face of these infrastructure problems merely serves to emphasise, the huge potential that exists across the continent. As these challenges are addressed, opportunities will continue to increase, signaling the likelihood of even stronger growth rates going forward. With Africa poised to rise even further, a bright future awaits.

Bill Banks is Global Infrastructure Leader at EY. This article was first published in EY’s Dynamics magazine.