A COMPARISON OF PUBLIC-PRIVATE PARTNERSHIPS IN NIGERIA & SOUTH AFRICA.

Author:Matey, Rebecca
 
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INTRODUCTION

In September 2017, Chidi Izuwa, acting Director General of Nigeria's Infrastructure Concession Regulatory Commission (ICRC), stated Nigeria would need approximately $100 billion over the next six years to finance quality infrastructure in the country. (1) In many countries, inadequate infrastructure continues to stifle economic, social, and political growth. (2) In response to the lack of funding and need for growth, countries have turned to private funding, through public-private partnerships (PPPs) for example, to meet these development needs. (3) PPPs are "long-term contractual arrangements between the government and a private partner whereby the latter delivers and funds public services using a capital asset, sharing the associated risks." (4)

While Nigeria and South Africa cumulatively account for almost half of Sub-Saharan Africa's gross domestic product, (5) their infrastructural makeups are vastly different. (6) In a 2015 study commissioned by the Public-Private Infrastructure Advisory Facility and the World Bank Group, the Economist Intelligence Unit profiled the operational maturity of nineteen African countries. (7) South Africa ranked first as the most mature country on the list. (8) South Africa was also the only country with market depth sufficiently capable of financing long-term investments. (9) While South Africa was top-ranked and the only country listed as "Developed," (10) Nigeria ranked twelfth with an "Emerging" capacity to carry out sustainable PPPs."

This Note will examine the regulatory and legal frameworks governing PPPs in Nigeria and South Africa. (12) This Note will also compare the enforcement, transparency, and effectiveness of PPPs within these legal and regulatory frameworks. (13) Lastly, this Note will discuss the social and cultural impact of PPPs within Nigeria and South Africa. (14) In comparing global, national, and local frameworks, this Note will examine why South Africa has made great progress and what Nigeria can adopt from South Africa's success. (15) This Note will also discuss recommendations Nigeria's infrastructure industries can implement to develop a full PPP regime that will benefit not only the industries themselves but also stakeholders and neighboring communities. (16)

The most vital recommendation is reform to Nigeria's PPP framework. (17) This Note suggests the implementation of a hybrid PPP framework to replace the current decentralized system. (18) Further, this Note encourages serious consideration of marginalized tribal/ethnic groups and communities that will be affected by PPP projects. (19) Lastly, this Note emphasizes the importance of consistency in PPP policies and programs in order to bring stability and legitimacy to the Nigerian PPP regime. (20)

  1. BACKGROUND

    For years, African countries have been considered the "preeminent emerging markets investment destination, attracting global investors across all sectors." (21) Much of the investment, which has led to growth in Africa's leading economies, is from the flow of foreign capital from private sources. (22) The flow of foreign capital is directed most prevalently towards infrastructure. (23) Perplexing, however, is that despite immense investment in African infrastructure and development, there has been little improvement in human development, infrastructural networks, business growth, or interdependence and coordination among neighboring cities, states, and countries. (24) As Africa is the least economically integrated continent in the world, there is great need for sound infrastructure in order to boost intra-African trade and raise the continent's competitiveness in the global economy. (25)

    To meet African development needs, the African Union (AU) created the New Partnership for Africa's Development (NEPAD), an economic development program, to offset some of the foreign development investment issues in Africa. (26) Since the inception of NEPAD, programs directly targeted towards infrastructure and the leadership behind infrastructure development have emerged. (27) One such program is the Program for Infrastructure Development in Africa (PIDA). (28) P1DA promotes "regional economic integration by building mutually beneficial infrastructure and strengthening the ability of countries to trade and establish regional value chains for increased competitiveness." (29) In regards to leadership, the Presidential Infrastructure Champion Initiative (PICI) was created to push African leaders to accelerate infrastructure development goals under PIDA. (30) The goal of both PIDA and PICI is to promote economic growth and development between African countries through enhanced visibility, cleared bottlenecks, and coordination of resource mobilization. (31) However, these goals are only attainable through large financial investments, resulting in the need for private financing. (32)

    PPPs represent a major route to securing private financing. PPPs have been defined in different ways by various organizations. The Organization for Economic Co-Operation and Development (OECD), for example, provides a flexible definition of PPPs as long-term contractual arrangements between the government and a private partner whereby the latter funds and delivers public services using a capital asset, sharing the associated risks. (33) Through this process, the government capitalizes on the skills, capital, and expertise of the private partner to perform substantial portions of the project. (34) Because the government typically pays for projects incrementally, the public and private entities share risks and rewards. (35) The government retains some measure of control through ownership of the project or contractual provisions allowing the public agency to dictate specific project processes. (36) Over time the government will acquire complete ownership of the project. (37) Due to the lack of funding, many developing countries continue to see significant potential and need for the increased use of PPPs to address infrastructure deficiencies. (38)

    While there are many criticisms of PPPs, (39) the reasons developing countries seek PPPs remain relatively unchanged: the opportunity to gain the expertise and know-how, while utilizing private financing to build necessary infrastructure and increase economic status. (40) The World Bank supports PPPs because of "the potential to close the infrastructure gap by leveraging scarce public funding and introducing private sector technology and innovation to provide better quality public services through improved operational efficiency." (41) The World Bank further states that improvements in infrastructure and social services contribute directly to economic growth and poverty reduction. (42) The ability of PPPs to spur economic growth and reduce poverty are particularly important in undcrserved communities, such as Africa, where population growth has only led to increased destitution. (43) It is imperative to improve infrastructure to provide better opportunities for underserved communities.

    There are a variety of forms of PPPs. On a scale of the most public to the most private forms of PPP, the OECD distinguishes the following types:

    * Service contract (44)

    * Management contract (45)

    * Affermage and lease contracts (46)

    * Concession (47)

    * Build-operate-transfer (BOT) and similar arrangements (including BTO, BOO, DBO, DBFO) (48)

    * Joint venture. (49)

    Regardless of the type of PPP, governments must convince the private financier to invest in a given project. (50) There are many variables that the private party will consider before entering into a PPP. One common consideration is whether the end-user is able and willing to pay for this investment. (51) Another consideration is whether a series of conditions can be met before considering the project. In order to assure payment for the service and the success of the PPP, the government will need to demonstrate the following are present in-country:

    1. Political stability;

    2. A continuous pipeline of bankable projects;

    3. Transparent and efficient procurement;

    4. Enforceability of contracts;

    5. Equitable sharing of risks with the public sector; and

    6. Certainty of the envisaged future cash flows. (52)

    While these conditions may alleviate some of the risks associated with PPPs, problems may still persist throughout the entire process.

  2. THE PROBLEM

    While Nigeria and South Africa constantly remain the largest economies in Sub-Saharan Africa, the quality of infrastructure in Nigeria would not lead one to believe it. (53) While Nigeria and South Africa cumulatively account for almost half of Sub-Saharan Africa's gross domestic product, (54) a disparity exists between Nigeria's development and South Africa's. (55) In 2015, the Economist Intelligence Unit profiled and ranked fifteen African countries for their operational maturity. (56) Of the fifteen countries, South Africa was the only country with sufficient market depth to finance long-term investment. (57) Ranking first in operational maturity, South Africa is also the only country on the list with a "Developed" overall score in its capacity to carry out sustainable PPPs. (58) Nigeria ranked twelfth with an "Emerging" capacity to carry out sustainable PPPs. (59) Many factors illustrate why South Africa's infrastructure regime is so far ahead of Nigeria's, such as its strong regulatory and legal frameworks. (60)

    1. Regulatory & Legal Frameworks

      Legislation and surrounding policies frame how project procurement occurs. While international organizations do not completely preempt the workings of solely national infrastructure projects, it is beneficial to understand the global, continental, and regional bodies before exploring the national regulatory frameworks within Nigeria and South Africa. On a global level, the OECD has outlined recommendations for PPPs in its Principles for Public Governance of Public Private Partnerships ("Principles"). (61) These Principles "provide concrete...

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