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PPPs ideal for self-financing infrastructure projects

24 Feb 2020 at 13:24hrs | Views
The state of public infrastructure in Zimbabwe is now deplorable due to several years of neglect and underinvestment. The country's infrastructure gap in railway, roads, energy, sports facilities, border posts, public health care, water and sanitation in now huge. A 2019 report by the African Development Bank (AfDB) pointed out that Zimbabwe needs over $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 $3.4 billion each year (starting this year) up to 2030 in order to keep up pace with developments on the continent especially with fast developing peers in the SADC region. The country aspires to be an Upper Middle Income economy with a Gross Domestic Product (GDP) of $65 billion by 2030 and to be fully industrialized by 2035. This would entail sustaining economic growth rates of 7% per annum for the next 10 to 15 years.

Poor infrastructure adds to the cost of doing business in the country, threatens business viability and potential investment. The current power shortages that go for 6-18 hours per day are leaving a trail of disaster for local producers. National grid output from three operational power stations (Hwange, Kariba and Munyati) stands below 750MW against current peak demand of 1400MW per day. Harare and Bulawayo power stations are not generating any electricity due to persistent equipment breakdowns and lack of investment to upgrade the infrastructure over the past two decades. The same can be said about the country's railway infrastructure which was built in the 1950s and has not seen any significant upgrade ever since. In terms of water and sanitation, perennial water shortages in Harare and Bulawayo underline the lack on investment in dam projects such as Kunzvi-Musami and Gwayi-Shangani dams. The water shortages also impact satellite towns such as Chitungwiza, Norton, Ruwa and Goromonzi which rely on Harare for supplies while contributing to cholera outbreaks that have now become routine in Harare. The same can be said for sports facilities and border posts which have become an eyesore to users and travelers alike despite the fact that these projects can be self-financed through revenues generated from public usage.

As for road infrastructure, the decay cannot be overemphasized when you compare the progress that Zambia, Botswana and Mozambique have been making in the past 15 years on road and transportation facilities. Pot holes, narrow lanes and rough edges define most highways save for the 800km stretch of Plumtree to Mutare highway which was rehabilitated in 2014. The highway still remains one of the best Public Private Partnership (PPP) undertaken in the country in the last 20 years considering its competitive cost of $206 million and the maintenance that still happens up to today. Notable PPP projects in Zimbabwe since independence include the 1994 Alfred Beit Road Bridge constructed by New Limpopo Bridge (Private) Limited under a 20 year Build-Operate and Transfer (BOT) arrangement at a total value of $18 million. Another PPP project that was successfully undertaken by the government is the Beitbridge Bulawayo Railway (BBR) line, which was implemented on a BOT basis by Beitbridge Bulawayo Railway (Private) limited in 1999.

The most prominent characteristic of all developed nations is their ability to build, maintain and modernize infrastructure at a pace in tandem with economic development and population growth. To achieve this, PPPs have been used in various 1st world countries and on the African continent to the greater good of public infrastructure development. In Zimbabwe, PPPs have not been prominent due to institutional decay (flawed rule of law, respect for property rights and contracts), high country and credit risk, economic and financial instability, political interference for control and corruption, inadequate regulatory and inconsistent policy frameworks. According to Africa Economic Development Strategies (AEDS), Zimbabwe can learn a lot from South Africa's regulatory and supervisory experience in managing PPPs. 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 Standardized Provisions to guide all projects of this nature. The SA 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 centralized 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.

Through PPP projects in dam construction, water treatment and distribution network, Rwanda is on track to become the first African country to provide 100% of its citizens with piped water, improving on what is already an impressive 85% countrywide access. The Rwandan government is striving to ensure universal water access by 2024 through increasing investment in construction and extending water supply infrastructure across the country.

Zimbabwe is burdened by sovereign liabilities which now eclipses $8.5 billion in foreign debt and billions more on the domestic front. The government has no capacity to invest over $3.4 billion in infrastructure projects in the foreseeable future of 10 to 15 years, and implement these projects efficiently and timeously as can be done via PPP arrangements. Maintenance and sustainability of such infrastructure is also a cause for concern as the government lacks scope in deriving maximum value from public projects that it undertakes through its own funding. A case in point is the 200MW Dema Power Project that was built at a cost of $498 million in 2016, but barely functioned for a year due to the high cost of producing electricity at the plant and corruption in its operations. Under PPP projects, the financial, technical and operational risk is borne by the sponsor of the project hence PPPs do not constitute to public debt or draw from tax revenues. PPPs would be ideal for self-financing projects such as the planned Batoka Hydro Electric Plant, Beitbridge-Chirundu & Bulawayo-Vic Falls Highways, Gwanda, Insukamini & Munyati Solar Projects, Kunzvi-Musami & Gwayi-Shangani Water Projects, local rail network upgrade and rehabilitation of all the country's border posts.

The consequences of infrastructure decay are evident in the high cost of importing power from neighboring countries year in year out, high cost of doing business and poor investment inflows into the country as investors prefer markets with better infrastructure in the Southern region. The government does not need to fund (or even own) all the public infrastructure especially railways, roads, dams, telecoms, airports, energy, schools, hospitals, sports facilities and real estate property infrastructure. A favorable political duty for the government would be to ensure that citizens derive maximum utility from the usage of such infrastructure, to the government's credit. The fact that PPPs tend to fund projects that are long term in nature call for policy consistency and stability as prerequisites for boosting investor confidence. There is no national security benefit in funding all public infrastructure, let alone wanting to control crumbling infrastructure which burdens the economy. The government only needs to provide opportunities for the private sector to partner government at local or national level through an enabling PPP regulatory and policy environment.

Victor Bhoroma is a freelance economic analyst. He holds an MBA from the University of Zimbabwe (UZ). For feedback, mail him on vbhoroma@gmail.com or follow him on Twitter @VictorBhoroma1.

Source - Victor Bhoroma
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