37543 noTE no. 7 ­ may 2006GRIDLINES Sharing knowledge, experiences, and innovations in public-private partnerships in infrastructure Responding to surging demand for PPIAF assistance in Africa A response combining traditional and new approaches James Leigland A new view of private participation in infrastructure appears to be emerging (17.4 percent) have received the most fund- among public officials in Africa. Many ing. For the first time PPIAF has alsoreceived now seem to agree that developing infra- funding requests from regional organizations structure is critical for reducing poverty and such as the New Partnership for Africa's promoting sustained economic growth, that Development (NEPAD), the Infrastruc- the private sector has an essential contribu- ture Consortium Secretariat at the African tion to make in this effort, and that while Development Bank, and regional economic expanding the private sector's participation communities like the Economic Community in infrastructure is challenging under any of West African States (ECOWAS) and the circumstances, it is more difficult in Africa Southern African Development Community than anywhere else. This new view has led (SADC). to a surge in demand for assistance from PPIAF, and PPIAF is responding through a Responding to demand--and fueling it strategy combining its traditional "upstream" PPIAF has responded to this growth in work with a greater focus on innovative demand--and in some ways may have new approaches to private participation in fueled it--in two ways. First, in 2005 PPIAF infrastructure. opened a second African office, in Dakar, PPIAF has always committed more funds to Senegal, to extend outreach efforts in West Sub-Saharan Africa than any other region. Africa and better serve francophone Africa. Indeed, since its establishment in 1999, The Dakar office now works with PPIAF's PPIAF has directed almost a third of its office in Nairobi, Kenya, to coordinate proj- funding (US$33.8 million) to Africa. But in ect management activities in Africa. early 2005 it began to see a sharp increase in demand for its services from the region. Second, in early 2005 PPIAF began imple- In fiscal 2006 this surge in demand trans- menting its first regional strategy for lated into a 49 percent increase in financial allocating its outreach and dissemination support for activities in Africa--from resources in Africa. The strategy maintains US$4.4 million in fiscal 2005 to US$6.6 PPIAF's traditional demand-driven focus million. but also allows it to more proactively offer the services in which African leaders are PPIAF's largest funding recipients in Africa increasingly interested. It emphasizes work- are Kenya (11.2 percent of the regional ing with regional organizations and adds a total), Nigeria (6.8 percent), Malawi (4.3 new focus on assisting with project devel- percent), Tanzania (4 percent), and South PUBLIC-PRIVATE INFRASTRUCTURE ADVISORY FACILITY Africa (3.9 percent). Among infrastructure James Leigland is PPIAF's regional program leader for East sectors, transport (18.5 percent) and water and southern Africa. Helping to eliminate poverty and achieve sustainable development through public-private partnerships in infrastructure PUBLIC-PRIVATE INFRASTRUCTURE ADVISORY FACILITY opment facilities and with units to facilitate Second, African officials have a new under- sustainable public-private partnerships (or PPP standing of the critical role for the private units). It also underscores PPIAF's willingness sector in financing and managing infra- to support a wider range of such partnerships, structure. Even combined, the government including management contracts, transactions funding and official development assistance involving local operators and investors, and (ODA) available for infrastructure invest- smaller projects that engage the community. ments in Africa fall far short of the region's needs. Moreover, the government funding The regional strategy also reinforces PPIAF's has been declining since the early 1980s core focus on such activities as building (Estache 2005). The percentage of ODA capacity, supporting legal and regulatory allocated to infrastructure has declined over reform, and building consensus around strat- an even longer period. In 1973 the share egies and techniques for involving the private of ODA for infrastructure was almost 45 sector in infrastructure. These "upstream" percent; by 2003, after three decades of grad- activities, sometimes only indirectly related ual reduction, it was just over 10 percent. to downstream infrastructure projects, are in Private investment by itself will not solve more demand than ever as managers of the the infrastructure development problem project preparation facilities established by in Africa, but African leaders increasingly donors, development finance institutions, understand that it will be an essential part and regional economic communities realize of the solution. that their assistance is mostly suited to rela- tively mature projects, for which upstream Third, African leaders and policymakers preparation is essential but often missing. have gained a growing appreciation of the challenges of expanding private partici- A new African realism pation in infrastructure. In 1990­2004 Driving the growth in demand for PPIAF Sub-Saharan Africa managed to attract just US$39.4 billion in investment for 245 infra- A new realism assistance appears to be a new realism among many African officials about the problems structure projects with private participation among African and potential of private participation in across all sectors--an average of US$2.6 officials is infrastructure in the region. PPIAF's inter- billion annually.1 Indeed, Africa ranks last among the developing regions in investment driving the actions with clients suggest that this new realism reflects tacit agreement with three in such projects, garnering just 5 percent of growth in basic propositions. the developing world total over the 15-year demand period (table 1). To make matters worse, the investment has been highly concentrated. for PPIAF First, over the past 10 years African govern- ments have become more acutely aware of About half has gone to just one country, assistance the importance of infrastructure in reducing South Africa, and another 14 percent to poverty and promoting sustained economic Nigeria. And more than 70 percent has gone growth. This awareness may stem in part to just one sector, telecommunications. from the international focus on Millennium Regional organizations have taken a leading Development Goals. Whatever the source, role in championing the new view of private this new awareness has been paralleled by participation in infrastructure and in driv- a sharper realization of how far behind ing the effort to make it a more realistic Africa is in access to infrastructure services. option for Africa. NEPAD is encouraging the According to most measures Africans have regional economic communities to include less access to infrastructure than people in cross-border infrastructure projects involving any other developing region (see Leigland the private sector in their long-term devel- and Butterfield 2006). The socioeconomic opment plans, and some, such as ECOWAS impacts of this lower access are increasingly and SADC, are creating project develop- being recognized in Africa. ment facilities to identify and package these Responding to surging demand for PPIAF assistance in Africa projects. Donor-capitalized project prepa- 2001, and assisted Kenya's government in ration funds have been established at the developing a framework for independent African Development Bank and the Devel- regulation of its rail sector in 2002. opment Bank of Southern Africa. Many African countries are now establishing PPP Engaging small enterprises in PPPs units. Most of these activities have involved The Ghana Community Water and Sani- PPIAF support of one kind or another. tation Agency requested PPIAF funding to study the potential for local small and medium-size enterprises to take on a greater TAble 1 role in providing small-town water service, Investment in infrastructure projects with Regional private participation, by region, 1990­2004 and to develop the tools water boards would need to negotiate contracts for this purpose. organizations Share Investment of total The PPIAF-funded activity also included are driving Region (US$ billions) (percent) implementing two pilot projects. Commu- nities took part in tendering the projects and the effort to East Asia & Pacific 199.2 23 deciding how they would be managed. The Eastern Europe make private & Central Asia 138.7 16 managementmodelsarebigimprovementson participation a Latin America traditional community-driven approaches in & Caribbean 391.0 45 Ghana, and a national workshop was held to more realistic Middle East start replicating them in other small towns. option & North Africa 42.1 5 South Asia 55.4 6 Preparing and packaging projects Sub-Saharan Africa 39.4 5 Tanzania's government asked PPIAF for help in identifying, appraising, and packaging Total 865.8 100 three infrastructure projects in the Mtwara Source: World Bank and PPIaF, PPI Project Database. Development Corridor, a regional spatial development initiative of the governments of Malawi, Mozambique, Tanzania, and Zambia. A small team of expert consultants Some PPIAF activities in Africa will work closely with the National Develop- PPIAF supports a range of activities to facili- ment Corporation of Tanzania to complete tate private participation in infrastructure the appraisals. It will also give the agency in Africa. The following ones (completed or advice on establishing a PPP unit that will ongoing) are representative of the types of continue to develop infrastructure activities assistance now in demand in the region. in the corridor. Several staff members from Providing policy and regulatory support for SADC development finance institutions will transactions be seconded to the Tanzanian agency so that By March 2006 Kenya and Uganda had both they too can benefit from the "on the job" signed a 25-year concession with a private training. operator to run the Kenya-Uganda railway. Identifying best practices for project development The concessionaire is Sheltam Trade Close Projects involving public-private partnership Corporation (South Africa), a firm associated are at the center of much of the infrastruc- with the Comazar Group, Africa's largest ture investment planning by NEPAD and private rail operator. The deal, considered the regional economic communities. But the the most ambitious privatization transac- region lacks a tested methodology to help tion in East Africa, is expected to bring as the public partners develop such projects in much as US$450 million in investment. responsible, accountable ways. The sophis- The transaction followed upstream PPIAF- ticated methodologies adopted by other financed activities: PPIAF helped Uganda's countries (such as the United Kingdom) may government develop a strategy for privatiz- not be suited to most African countries, with ing its railways, approved by its cabinet in nascent markets for these projects. NEPAD requested PPIAF assistance in developing a led to a general appreciation of the need to succinct set of generic, user-friendly guide- develop innovative new approaches to private lines for carrying out all the analytical work participation in infrastructure--approaches needed in conceptualizing and appraising that better combine sustainability of proj- public-private projects. ects with benefits for the poor. Note Developing institutional capacity to oversee PPPs 1 The Private Participation in Infrastructure (PPI) Project Database In Kenya, which has many infrastructure includes only low- and middle-income countries, as classified by projects with private participation under the World Bank. Country classifications and project information are updated annually. All U.S. dollar amounts are in nominal way or in preparation, the oversight of such terms as posted on the PPI Web site (ppi.worldbank.org). projects is dispersed among different minis- References tries and departments with no harmonized legal framework or comprehensive guide- Estache, Antonio. 2005. "What Do We Know about Sub-Saharan Africa's Infrastructure and the Impact of Its 1990s Reforms?" lines. The government asked PPIAF to help Draft, June 15. World Bank, Infrastructure Vice Presidency, create a strategic framework with clear guid- Washington, D.C. Leigland, James, and William Butterfield. 2006. "Reform, Private ance, appropriate legal provisions, and an Capital Needed to Develop Infrastructure in Africa: Problems effective institutional setup for efficiently and Prospects for Private Participation." Gridlines series. PPIAF, Washington, D.C. implementing these projects. The PPIAF- funded study will investigate the costs and benefits of establishing a PPP unit to guide policy and project development and, if such a unit is found to be cost-effective, help in designing it. In addition, PPIAF is helping set up or strengthen PPP units in Botswana, Malawi, Mozambique, South Africa, and Tanzania. It is also working with ECOWAS on a proj- ect development facility and has advised the SADC Secretariat and the Nigerian govern- ment on similar facilities. Building consensus around PPI In June 2005 PPIAF and the World Bank sponsored a conference in Cape Town bringing together more than 200 policy- GRIDLINES makers, financial experts, civil society representatives, and private sector Gridlines share emerging knowledge investors and operators to assess on PPP and give an overview of a wide private participation in infra- selection of projects from various regions of the world. Past notes can be found at www. structure (PPI) in Africa and ppiaf.org/gridlines. Gridlines are a publication its impacts on the poor. of PPIAF (Public-Private Infrastructure Advisory Discussions were unusually Facility), a multidonor technical assistance PUBLIC-PRIVATE INFRASTRUCTURE ADVISORY FACILITY facility. Through technical assistance and frank, particularly on the knowledge dissemination PPIAF supports the efforts shortcomings of some past of policymakers, nongovernmental organizations, research institutions, and others in designing and efforts. The conference implementing strategies to tap the full potential of private involvement in infrastructure. The views are those of the authors and do not necessarily reflect c/o The World Bank, 1818 H St., N.W., Washington, DC 20433, USA the views or the policy of PPIAF,the World Bank, the World Bank, Phone (+1) 202 458 5588 FAX(+1) 202 522 7466 or any other affiliated organization. PUBLIC-PRIVATE INFRASTRUCTURE ADVISORY FACILITY generAl eMAIlppiaf@ppiaf.org web www.ppiaf.org