HomeBusiness DigestZim urgently needs PPP regulation

Zim urgently needs PPP regulation

Victor Bhoroma:analyst

THE state of public infrastructure in Zimbabwe has never been as dire as it is now. Years of underinvestment in the railway network, highways and roads, energy generation plants, sports facilities, border posts upgrades, public health care, water and sanitation facilities, has left the country behind in terms of modern infrastructure standing in Southern Africa.

A 2019 report by the African Development Bank (AfDB) pointed out that Zimbabwe needs over US$34 billion in the next 10 years to upgrade its infrastructure so as to achieve sustainable levels of economic growth. This means that the country would need to invest US$3,4 billion each year (beginning in 2020) up to 2030 in order to keep up pace with developments on the continent, especially with fast-developing peers in the Southern African Development Community (Sadc) region.

Sadly, the country has limited resources to close this gap or even maintain the existing infrastructure. The African Union (AU) Declaration stipulates that African governments must spend 9,6% of their Gross Domestic Product (GDP) on infrastructure to keep pace with the demands from population and economic growth.

Over the last 10 years, Zimbabwe has invested an average of US$272 million per year in infrastructure development projects. The government budgeted to spend ZW$2,036 billion on capital expenditure in 2019, however ZW$1,832 billion (US$210 million) was eventually spent. In the first half of 2020, only ZW$2,1 billion (US$84 million) was spent on capital projects.

The pattern clearly shows inconsistency and neglect on infrastructure spending. It shows that recurring government expenditure on civil service remuneration, subsidy programs and employment related overheads now constitute a larger chunk of actual budget allocations.

However, the government does not need to fund all public infrastructure development projects even if financial resources were abundant. Maintenance and sustainability of public infrastructure is a cause for concern as the government lacks scope in deriving maximum value from public projects and efficiency in their management. The limited tax revenues can better be allocated on unrelenting needs such as disaster management, food security, social safety nets and improving conditions of public service among other pressing demands.

The infrastructure gap in Zimbabwe requires the participation of private sector capital through public-private partnerships (PPPs). Under PPP financing models, the financial, technical and operational risk is borne by the sponsor of the project hence PPPs do not constitute public debt or draw resources from tax revenues.

PPPs would be ideal for self-financing projects such as the construction, upgrading (modernisation) and rehabilitation of the country’s railway network, major highways, border posts, airports and aviation systems, energy generation, sports facilities, urban housing, mass media and telecommunications hardware, petroleum transportation and storage, waste management, urban water (dams) and piping projects.

However, to secure investment on such mega infrastructure projects the country requires a robust PPP Legal Framework which allows private capital (domestic or foreign) to be crowded in. The regulatory framework also ensures guarantees to property rights, respect for contracts, ownership and terms on the management of built infrastructure.

Currently, Zimbabwe has no legal framework that guides investment in infrastructure projects at local government or national level.

In 2004, the government developed the PPP Policy and Guidelines, but this did not translate into binding legal and regulatory framework. Without such regulations, investors and financial institutions cannot take risks to finance PPP projects locally considering the monetary policy inconsistencies, institutional decay (property rights flaws & tainted rule of law), bureaucracy and high levels of corruption in government.

The AfDB (2018) report explicitly points that inappropriate regulatory framework limits private sector participation in infrastructure funding in Zimbabwe.
Zimbabwe must borrow models from other Sadc countries such as Botswana, Mozambique, Zambia, South Africa and Tanzania which have efficient PPP regulatory frameworks.

Zambian PPP framework
The Zambian government enacted the PPP Act in 2009. The Act covers entirely everything on PPPs from the formation of the PPP unit in the Ministry of Finance which promotes the participation of private players in infrastructure development, the PPP council which approves the projects and the technical committee which advises the unit and council on technical aspects.

The technical committee constitutes permanent secretaries from responsible government ministries, independent technical and economic experts. The three arms provide oversight, checks and balances on implementing PPP projects in Zambia. Since gazetting the Act, Zambia has seen PPP projects worth over US$2,783 billion in electricity projects and over US$800 million highway upgrades in the Copperbelt and Lusaka provinces.

The government has also managed to free up capital to invest in other infrastructure projects in the country.

South African PPP framework
South Africa has the greatest cumulative experience of public-private partnerships in the whole of Africa, with over 50 such partnerships at the development or implementation stage from national to provincial level, and 300 projects at municipal level, since 1994.

The South African Treasury (which approves PPP projects) has developed a PPP Manual and Standardised Provisions to guide all projects of this nature. The National Treasury’s PPP unit was set up in 2000 to oversee all PPPs at national and provincial level in terms of the Public Finance Management Act of 1999.

The centralised management of PPP proposals by an experienced team in the South African PPP unit has seen the country develop world class infrastructure from motorways, traffic interchanges (spaghetti roads), railway systems, world class telecoms, sports, airports and border post infrastructure that are an envy to most African countries. The 2019 national budget of South Africa indicated that a total of 33 completed national projects valued at US$5,2 billion have been undertaken exclusively through PPPs since then.

Tanzania PPP framework
The government of Tanzania established the PPP policy and legal framework to guide delivery of public goods in support of PPPs. These include the PPP Policy (2009), PPP Act (2010), PPP Regulations (2011), and later on the revised PPP Act (2014) and Regulations (2015).

The country’s PPP Act is applicable to partnerships or contracts whereby private entities appointed as private partners undertake infrastructure projects in partnerships with local authorities or the government.

Like most countries, the Act prescribed the formation of the Co-ordination Unit under the Ministry of Finance and the procedures for the establishment of a coordination committee which constitutes government representatives, engineering experts and financiers.

So far, a sizeable number of projects have been undertaken through PPP models including the Dar es Salaam Bus Rapid Transit Transport System, the Bagamoyo Port and a number of energy projects such as the Kinyerezi III and IV Gas Power Project, Mkuranga Gas Power Project, Ngaka Coal Power Project and Singida Wind Power Project (combined output of 1 500 MW).

Zimbabwe urgently needs to set up a PPP Act and related regulations in order to achieve its economic and social development goals by 2030. One of these goals is to be a middle-income country in 10 years’ time.

The benefits of establishing PPP legal framework for Zimbabwe are that the regulations promote increased investment in infrastructure projects by the private sector in a country where private sector participation is drying rapidly due to institutional decay and corruption. The regulations ensure equity of treatment for private investors, transparency and accountability in infrastructure projects, competitiveness in bidding and cost-effectiveness of procurement and management processes. PPPs utilise the strengths of both public and private sectors to bring affordable quality infrastructure and social services to the people.

Other benefits include effective asset management, revenue generation, and infrastructure modernisation, value for money to all stakeholders (the government, the citizens and the private partners), quick delivery of key projects and employment creation for local skills directly and indirectly from such projects. The government has no capital to meet its infrastructure spending targets and foreign debt obligations are exerting more pressure on limited resources from a declining economy.

Failure to set up a PPP Regulatory Framework means that Zimbabwe will be left behind in infrastructure development by its regional peers and may never be ready to implement the Africa Continental Free Trade Area (AfCFTA) in the next 10 years.

Bhoroma is a marketer by profession, freelance economic analyst and holds an MBA from the University of Zimbabwe. — vbhoroma@gmail.com or Twitter: @VictorBhoroma1.

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