I am delighted to open this 4th roundtable. Over the last couple of years, we have organized several important meetings to establish a strategic dialogue platform between the private and public sectors. This meeting will continue the dialogue between African delegations and investors in public private partnerships or PPPs.
As we all know, Africa’s economies are going through a period of unprecedented growth and development. Excluding South Africa, sub-Saharan Africa grew at nearly 6 percent in 2012 (5.8 percent), consolidating more than a decade of growth at rates above 5 percent, even taking into account the dip that occurred in 2009 because of the global crisis.
Africa has been growing at these rates due to an increase in commodity prices but also due to improvements in governance and in macroeconomic management. These improvements have also helped make Africa a destination for investment. Foreign direct investment is augmenting Africa’s own, quite low, savings levels and leading to increases in African investment which has grown from less than 16 percent of GDP from 1997 to over 22 percent last year.
The key challenge for African Governments is to convert this growth into jobs – this requires a focus on labor intensive sectors including agriculture and agribusiness, light manufacturing and services. There are many impediments in achieving higher growth and job creation.
I want to speak today about two of these i.e. the inadequate supply of infrastructure and the increased role that the private sector needs to play in helping to address them.
Inadequate supply of infrastructure
The region has registered a persistent and worrisome infrastructure deficit which has had a significant economic cost: For example, the economic cost of power outages in South Africa, Uganda, and Malawi is estimated to be at above 5 percent of GDP per year. Thirty countries in Africa face regular interruptions of power supply obliging private firms to invest in costly power generators.
While Africa has about 80 GW of installed generation capacity, it should be installing 1GW of power generation capacity every two months whereas only 1 GW is added every year. Yet, Africa has 45 GW in feasible hydropower , but the uneven distribution of resources and the distance separating hydropower points from economic centers are preventing the hydropower potential from being developed.
There is clearly a need for regional solutions. Recognizing this need, the World Bank has been working with our member countries in Africa to develop and implement some transformational projects, particularly in power. The gas fired IPP projects in Nigeria and the $4.5 billion Hydropower project in Mphanda Nkuwa in Mozambique are two examples.
Similarly, infrastructure may also be needed in specific sectors. For example, improving agricultural productivity requires investments in irrigation along with other infrastructure needs such as rural roads, storage, cold chains, and logistics terminals.
While infrastructure is urgently required, public finances are quite constrained. Albeit the increasing FDI in commodity business, public spending in infrastructure investments as a percentage of GDP has decreased from around 4 percent between 1980-85 to 1.6 percent between 2001-2008. Private investment needs to be harnessed to augment the current low level of public spending in infrastructure through the use of Public-Private-Partnerships.
PPPs are not new for African countries. A number of countries have successfully closed flagship PPP projects. However, the move to a more programmatic use of PPPs to bridge infrastructure gaps has been more difficult to achieve.
Only 5 percent of the infrastructure in Africa is implemented through PPP –the lowest performance among regions globally.
I think it would be useful for the meeting today to discuss how to achieve this more programmatic approach to PPPs by improving outcomes in three key areas:
- Strengthening the enabling environment for PPPs. The development of a policy framework and its implementation are key requirements. However, ensuring that public procurement is done in a transparent manner and that bilateral negotiations on unsolicited bids are the exception rather than the rule has been a challenge. It would be useful to discuss how the implementation of the policy framework could be further strengthened.
- Developing a robust pipeline of projects that can be taken to the market. Although there has been increasing support from development partners for project preparation in the recent past, not enough projects selected for PPPs are reaching financial closure. It would be useful to discuss what would make these projects more bankable and attractive to private investors.
- Mobilizing long term private capital. While there is significant interest from investors in Africa and beyond, there are still challenges of marrying the risk appetite of institutional investors (such as pension funds) with the risks inherent in infrastructure development. It would be useful to discuss how to better structure transactions (particularly during the risky construction phase) in order to better allocate risks to those investors most willing and able to bear and manage such risks.
Clearly, the time is at hand to make a significant effort to increase the use of PPPs in Africa. This is going to need better coordination and I would urge that we use this meeting today and our platform for collaboration to engage in an active and concrete dialogue between countries, project developers and potential investors together with regional organizations and development partners.
On the World Bank Group’s side, we are ready to play our role in enhancing the impact of PPPs and to work towards the next stage of African development, a new set of opportunities for African investors, and a true transformation of Africa.