PPP Collaboration an economic catalyst for Harambee

Nambata Angula (Standard Bank's Manager of Client Coverage) - Whether you're at church, the village, home, school, cuca shops, Twitter, Facebook, Snapchat; you name it - the new buzzword in Namibia is “Harambee.” For those who might have missed the boat, this refers to the government's action plan towards prosperity for all in line with the President's declaration of an all-out war against poverty in Namibia.
The Harambee Prosperity Plan is not intended to replace the country’s national development policies, but rather to complement them as an implementation plan for attaining prosperity in our country.
The Plan is built around five priority areas, namely: Effective governance, economic advancement, social progression, infrastructure development, and international relations and cooperation – all essential for the prosperity of this nation.
This article will focus on infrastructure development and how public-private partnerships (PPPs) can be used to achieve our goal towards modern and reliable infrastructure development and the role of Standard Bank in this area.
Public infrastructure development has traditionally been delivered with the use of budgetary resources by the government. However, with government facing budgetary constraints, a paradigm shift is necessary as opportunity costs of public funds rises sharply. Therefore private investment is no longer a choice, but rather a necessity to ensure the successful development of infrastructure in Namibia.
The government has taken a progressive step with the establishment of a Public-Private Partnership (PPP) Unit housed in the Ministry of Finance. Its mandate is to create awareness of PPPs in Namibia; coordinate PPP capacity building in Namibia; assist government agencies in preparation and taking PPP projects to market to demonstrate workability; assist in developing a favourable environment for PPP projects in Namibia; perform PPP project assessments; and be the Secretariat to the PPP Committee.
Public-Private Partnerships are commonly defined as a contract between a government institution and a private party with the aim of achieving value that could not have been achieved without collaboration, in this instance infrastructure development in order to spur on economic development. This type of infrastructure is usually capital intensive with a tangible asset to operate and maintain, with the generation of cash over the long term.
Several contractual approaches have been identified by the World Economic Forum, namely: Partnerships, where both the public and private parties share in the risks and benefits of a project; concessions, where the government gives a third party the right to use or develop an asset for a specific purpose and period with all risks and benefits transferred to the party during the concessionary period; licences, where the government gives a third party the right to own or utilize a country’s resources; and lastly privatization, where assets and/or operations are transferred from the public sector to private ownership.
A rarely used approach in Namibia is the concessionary approach, with the build-operate-transfer (BOT) arrangement considered the most frequent form of PPP worldwide. Variants to this arrangement are build-transfer-operate (BTO), design-build-finance-operate (DBFO), build-own-operate (BOO), design-build-operate-maintain (DBOM), and several others.
Typically under concessions, a private sector party, known as a concession holder, invests, builds, and operates an infrastructure project for a specific period, keeping control and cash flow rights until the concession period ends, after which the asset is transferred to the government. Such concessions have frequently been used to finance major infrastructure such as highways, tunnels, airports, ports, bridges, canals, railroads, railway transport systems, power generation, transmission infrastructure, water supply infrastructure and telecommunications infrastructure.
Concessions are attractive to governments and politicians as they limit government spending by shifting investment costs to private interests. They also allow for specialized corporations that have better technology expertise and project experience than local government to run these projects, thus incentivizing on-time and within budget delivery, opening opportunities to innovation and optimizing risk allocation.
However, in order to attract private investors, there has to be a business case showing that the concession holder will re-coup its investment cost from the firm’s profits during the concession period, while mitigating the risk of a decrease in consumer surplus due to inflated pricing strategies by concessionary holders which might leave consumers worse off.
Ways to mitigate this risk is through the introduction of price caps, however regulators will need to strike a good balance to ensure appropriate price caps that will make concessions valuable for both the government and private sector.
One of the earliest cases of the use of concessions is the development of the Suez Canal project for which construction and operation was privately financed by the Suez Canal Company in 1859, with the company obtaining a 99-year concession.
In developed economies, concessions became most attractive since the 2008 financial crisis when most of those economies faced severe budget deficits, e.g. Spain, France, Belgium, and Germany.
Not many cases exist in Africa as yet, however the continent strives to evolve towards PPPs for the funding of infrastructure projects, an example being the construction and operation of the N4 toll road from Witbank to Maputo in a multi-billion rands 30-year concession signed by the governments of South Africa and Mozambique in 1996 with a private consortium Trans African Concessions.
In Namibia, an example is the construction of the Ujams Waste Water Treatment plant that was commissioned in 2014 using the DBOM model for a 21-year concession period.
It is critical to note that the successful delivery of PPP projects is dependent on various factors, such as: A transparent and effective procurement process, good governance, sound economic policy, sound legal foundation, effective management and transfer of risk, well-defined contracts, and financial capabilities, amongst others.
The use of PPPs will significantly benefit Namibia as she strives to become a logistics and distribution hub by 2030, with plans to develop the railway and road networks, and upgrade our port; without overlooking a looming power and water crisis.
As a bank well represented in Africa, Standard Bank has had experience in numerous African countries in advising, arranging and financing large infrastructure projects through project finance means and capital markets. Our most recent example is our role as a joint lead manager in the issuance of the Eurobond, and corporate bonds for State-Owned Enterprises.
Standard Bank was also appointed as a joint mandated lead arranger for the construction of the largest utility-scale wind farm in Sub Saharan Africa, enabling that nation to reduce its reliance on heavy fuel oil and diesel to power its electricity grid.
These are just some cases which demonstrate our capability in this area, with the latter example being a PPP case.
Now is the time for the private sector as an engine for economic growth to come to the table in order to make Namibia the poster child of public-private collaboration.