BY LEONARD WANYAMA
Involvement of the business community in service delivery matters is increasingly popular in current development discussions. This is on account of the envisioned opportunity to tap into the sector’s resources in the achievement of prosperity and growth.
Using the mechanism of Public Private Partnerships (PPP), the involvement of the private sector promises to reduce costs, provide higher public satisfaction and improve competition in the provision of public goods.
That is why even the Africa Union’s Program for Infrastructure Development in Africa (PIDA) PPPs feature prominently. PIDA sees this mechanism as the means by which it can radically implement infrastructure projects across the continent.
PPPs are described in three main ways. First, they are a medium- or long-term contractual arrangement between the state and a private sector company in the delivery of a project. Secondly, PPP could also be an understanding in which the private sector entity of one kind or the other participates in the supply of assets and services traditionally provided by government.
This is particularly attractive for government in making hospitals, schools, prisons, roads, bridges, tunnels, railways, water, sanitation and energy functional as demanded by the public. Lastly, PPP is a bargain involving some form of risk sharing between the public and private sector.
Utility of PPPs arises particularly from the promise of delivering high quality investment while easing access for funds needed in the implementation of projects. This is because government doesn’t need to look for money upfront for intended projects.
Projects can then rely on annual instalments from revenue budgets or paid for by user fees. Direct loans are therefore avoided because costs can be dealt with in the future as governments take on debt or can be passed on to the public utilizing the specific facility.
Hard economic times and austerity measures faced by government are increasingly making PPPs more attractive because of the advantages in cash flow management. They can also be kept off balance sheets and hence their true costs won’t be known.
When considered within the parameters of efficient project delivery, both public and private sector actors have different motivations to pursue PPPs. Whether it is search for profits by business entities or the myriad political and policy goals of government, the public seems very likely to lose out of such arrangements.
Many things are likely to go wrong if sustainable development does not emerge as the main motivation for development initiatives. Most of these challenges are due to a lack of careful consideration and following proper mechanisms that are inclusive from financing to implementation.
Unfortunately this first leads to breaking its most important promise. In most cases PPPs end up being a more expensive mode of financing development. Interest rates in the financing of these projects end up being double at 7-8% as compared to government borrowing rates 0f 3-4%.
Secondly, PPPs are extremely tedious to negotiate and implement. This often results in making construction and transaction costs higher than regular public works. The process involves high tender or transaction costs together with extremely complicated long term contracts reducing government options plus narrowing opportunities for a few select companies.
This then makes this mechanism a riskier way of financing for public institutions to attain their service delivery goals. When a project fails, the burden is usually shouldered wholly by government in rescuing the initiative and in some instances the company involved at taxpayers’ expense.
Accordingly, it is emerging that despite the hype of how PPP projects are delivered more efficiently, global experiences are pointing towards increasingly limited and weak evidence of impact.
In 2009 a World Bank report on PPPs in electricity and water projects among developing countries over the past 25 years showed there was an increase in efficiency gains. However, this prevailed side by side with the reality that there was a lack of private sector investment as expected and a failure in lowering consumer prices.
Other reasons to fear PPPs show that such projects face serious challenges in reducing poverty and inequality. This is particularly the case when the negative consequences towards the environment are contemplated.
More importantly, this emerges when the wrong projects are selected for implementation. This is on account of the fact that the private sector prefers to engage only in works deemed most profitable. Government sometimes invests in projects that are most needed to cater for the needs of the public good which may at times not necessary be profitable enough for PPP mechanisms.
PPPs then experience very low levels of transparency due to limited public scrutiny. This essentially undermines democratic accountability. Communities do not have avenues that can adequately address their concerns. Also blatantly corrupt practices are easily swept under the carpet
Ultimately, inconsiderate PPP implementation poses serious capacity constraints on the public sector. This then increases the challenges for developing countries. This story appeared on the hard copy version of the NBM August 2, 2016.