In my article last week regarding Africa’s infrastructure needs, I reviewed the large scale infrastructure deficiencies that you find in Africa as compared to the west. (Transportation, clean water distribution, waste water & sewage collection, internet and voice communications and electricity) I also talked about that fact that most governments in Africa do not have the capital (financial and/or political) to go about investing what is required to bridge the infrastructural divide.
I received several comments and messages about the best ways to go about tackling this divide, however in my opinion, the best way moving forward is the Public-Private Partnership AKA: PPP or P3.
An apt description of a PPP is as follows: A public-private partnership (P3) is a contractual arrangement between a public agency (federal, state or local) and a private sector entity. Through this agreement, the skills and assets of each sector (public and private) are shared in delivering a service or facility for the use of the general public. So public services, many of which I described above, are built in partnership between private entities and the government which wants them built.
While the private sector has, under traditional procurement, still been involved in the financing, design, construction and management of these types of projects, the difference with PPP’s is that these various functions are all integrated into one contract, transferring greater risk and responsibility to the private sector. The government in question underwrites and therefore mitigates the risk for the corporate partner, but there are strict requirements and deadline which have to be met in order to capitalize completely on the rewards of getting things done on time and on budget. There is generally less bureaucratic red tape involved and decision-makers communicate directly on both sides regularly.
There are several types of PPP’s to be found in the market including but not limited to: Operations and Maintenance (O&M), Build-Finance, Design-Build-Finance-Maintain, Design-Build-Finance-Maintain-Operate, Concession and Build-Own-Operate. These are listed in order of progressive risk transference and the model used depends on the goals of all parties involved.
Essentially when a partnership like this one comes into effect, it is built based on the strengths of both the private and public entities. The public sector generally takes a long-term view of a project to protect the interests of the public and can best establish the project scope, undertake transparent procurement, negotiate a fair contract and monitor the project for its life. The private sector’s strengths lie in its focus on profits and efficiency by finding the least expensive source of financing, developing a low cost design, undertaking the project quickly and efficiently managing the project throughout the lifecycle.
Given each parties strengths, the key benefits of the PPP are the speed in which projects can be undertaken and completed, on-time completion, all risks are borne by the private sector, O&M costs are lower and carried out throughout the life cycle, assets last throughout the life cycle, and the public benefits from well-run services with valued cost savings in the long term.
There are many shining example of massive scale PPP’s everywhere around the world. While it may not necessarily be the best model to use in all instances of infrastructure development in Africa, in the vast majority of them, it will end up saving the public time and money and avoid inherent issues plaguing traditional models in use in Africa today.
Derek Kopke is a senior business development executive and consultant. He’s traveled to over 65 countries and closed sales in over 80 countries across the globe. With an undergrad in education and an MBA in International Business, his unique world view and experience with cultures globally give him valuable experience which he has used to the benefit of companies interested in growing overseas. Derek is based in Montreal, Canada along with his wife and two teenage children.
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