HomeBusiness DigestPublic Private Partnerships in Zim: What govt should be cautious about

Public Private Partnerships in Zim: What govt should be cautious about

Adrian Chikowore:POLICY ANALYST

THE definition of Public Private Partnerships (PPPs) is debatable. PPPs can be defined as long-term contractual arrangements where the private sector provides infrastructure assets and services that have traditionally been provided by governments with the arrangement ensuring that there is some form of risk sharing between the private player and the public sector.

Africa’s rapid economic growth over the last decade has brought relatively small improvements for human development. It has been noted that one of the barriers to this has been limited enabling infrastructure. As a result, the World Bank, the International Finance Corporation (IFC) and International Monetary Fund (IMF) have been at the forefront of promoting PPPs for infrastructure development and governments and business leaders across Africa have come to accept PPPs as a means of procuring and financing infrastructure projects for their development.

This economic thinking has seen an increasing number of countries including Zimbabwe developing PPP policies and frameworks that typically reflect the institutions, procedures and rules needed to implement the PPP approach which has varying models such as concessions and privatisation and service, management, lease and build-own-transfer (BOT) contracts. These all fall under Zimbabwe’s open-for-business mantra, which is implemented under the Transitional Stabilisation Programme that government has been rolling out as public sector reform which entails partially privatising state-owned enterprises.

Some of the entities that were or still are earmarked for full or partial privatisation include Zimbabwe Electricity Distribution and Transmission Company, Industrial Development Corporation of Zimbabwe and the Infrastructure Development Bank of Zimbabwe. Whilst these institutions may be commercial entities included under the TSP, Section 13 of the country’s constitution and legislation including the Zimbabwe Investment Development Act have clauses for private sector activity across sectors.

Given that the Zimbabwean government has limited fiscal space due to its debt arrears to the World Bank, the African Development Bank and the Paris club, PPPs offer some advantages to government in that private partners have immediate access to funds, which may not be the case with public budget cycles.

Private involvement has also been credited with efficiency in sectors such as transport, energy and water distribution — although it should be cited that these have mainly been in developed countries such as the United States of America and the UK. Thus, within this context, the basic success factors of PPPs need to be coupled with private financing that at least delivers infrastructure that can boost economic development, ease accessibility and contribute towards eradicating inequality and poverty.

Irrespective of the opportunities PPPs bring, they largely pose challenges to governments and some of the challenges include:

PPPs are an expensive
In the preparation and implementation of PPPs, the profit motive of the business sector has conflicted with the social contract governments have with their citizens on the provision of affordable basic services.

Assessments of PPPs in 2015 by institutions such as the African Forum and Network on Debt and Development (Afrodad), European Network on Debt and Development (Eurodad) and even the World Bank note that PPPs are expensive and risky. They also note that they have mixed development outcomes, are difficult to negotiate, are marred by poor planning and project selection and generally lack transparency and accountability.

Coupled with this is the concern that the majority of projects in Africa do not appear on national public accounts. The majority also have a currency mismatch brought about by loans and their repayment being in hard currency whilst project and government revenues are transacted in local currency.

Over the life-cycle of projects, local currencies typically depreciate against the hard currencies and this along with other factors will lead to defaulting, termination and accrued debts. Strong consideration must be given to local currency financing, service and or offtake payments in local currency and the inclusion of local capital markets such as pension funds and insurance funds that are highly liquid and looking for long-term assets to match their long-term liabilities.

The case of the Queen Mamohato Hospital in Lesotho signifies the impact PPPs have on the public purse as in 2016 the private partner Tsepong Private Limited “invoiced” fees amounting to two times the “affordability threshold” set by the Lesotho government and the World Bank at the outset of the PPP.

Contributing factors to cost escalation include flawed indexation of the annual fee paid by the government to Tsepong (unitary fee) and poor forecasting the unitary fee that the government could pay was pegged at US$12,9 million but it ended up parting with US$18,4 million.

Efficiency is very limited
PPPs have been instrumental in infrastructure development in sectors that include transport, energy, water and sanitation. Whilst the infrastructure has been overwhelmingly welcomed in promoting economic efficiency within economic development; this has come with its share of challenges especially for the ordinary citizens who have had to carry the burden of paying off the contractual debts through the payment of service fees such as toll fees, water rates, health and education levies from their own pockets.

For those who cannot afford these fees, there is automatic disenfranchisement from accessing the services indirectly or directly; a scenario that violates their human rights entitlement to services including health, education, basic housing, and safe portable water.

PPPs pose capacity constraints
African governments including Zimbabwe’s have difficulties and low effectiveness levels in regulating the private sector and limited domestic financial markets.

Their administrations are characterised by inadequate and weak legal and regulatory frameworks as well as limited technical skills to manage PPPs as compared to the private sector. Limited financial markets and infrastructure makes PPP projects more expensive in most African countries.

Limited public scrutiny
PPP implementation in most low-income countries is characterised by lack of public consultation and participation. The poor and marginalised are left out or bypassed as their governments have difficulty and or neglect the inclusion of poor people in policy making. It is this context that PPPs have no real tangible benefits for the poor and marginalised.

The low level of transparency associated with PPPs, leads to limited public scrutiny and participation and is one of the sources of criticism pertinent to social impact. In Zimbabwe’s metropolitan town of Chitungwiza, a 2016 study by Zimcodd established that the Chitungwiza Central Hospital established a PPP in 2012 with Baines Imaging Group, a private entity.
Through this PPP, the hospital had the privilege to have the provision of, and access to, ultrasound CT scans and MRI services in return for fees paid by patients.

However, in the process of initiating the joint venture, the public hospital and ministry did not consult its stakeholders on the implications of the initiative thus disenfranchising them from consultations leading to public outcries by Members of Parliament about the privatisation of the respective departments within the hospital, consequently making the facility expensive and inaccessible to the poor.

Whilst the country is making strides to improve its investment profile, Zimbabwe should not promote the use of PPPs until there are capacity gains within public sector entities to plan, develop and manage PPP projects. This should be guided by robust PPP policy frameworks and strategies.

Government ministerial departments and agencies (MDAs) involved in PPPs need to analyse the true costs of PPPs based upon comprehensive comparative analyses of procurement options and accounting practices such that they appear on national accounts to ascertain a country’s debt position.

The responsible ministry and parliament should ensure that respective MDAs disclose all documents and information associated with public sector contracting to enable meaningful understanding and monitoring of project performance and accountability of outcomes in order to ameliorate financial risks that may be shouldered by the public sector as a result of delays and renegotiation.

In all its efforts, the government should prioritise development outcomes. PPP projects should be initiated driven by national development strategies meant to sustainably benefit the Zimbabwean society. This entails the need for PPP projects to bring affordability of services in public sector institutions and maintain human rights-based approaches to access to public goods.

Chikowore is a policy analyst focusing on International Public Finance in the Africa region. His work streams include aid and development effectiveness, international financial institutions and poverty reduction and Public Private Partnerships in which he provides policy intelligence through policy research, advocacy and campaigns. These weekly New Perspectives articles are co-ordinated by Lovemore Kadenge, an independent consultant and immediate past president of the Zimbabwe Economics Society. — kadenge.zes@gmail.com or mobile +263 772 382 852.

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