The role of private-public partnerships in economic development

A section of the Standard Gauge Railway line passing through the Nairobi National Park. July 2, 2021. [Elvis Ogina, Standard]

Economic development is usually driven by investment as well as an increase in productive output, ensuring that individual workers attain a higher value for their labour.

Through economic development, it is possible to achieve a higher standard of living. The private-public sector is responsible for the economic development in various countries across the world through their project initiatives.

The private-public sector projects make it possible to solve the development problems through various concerted and coordinated efforts between the government and the non-government sectors, together with the civil societies and companies.

They leverage expertise, market efforts and resources to achieve greater effect and sustainability in development outcomes.

The partnership between the private and public sectors contributes to economic development. That involves encompassing neglected spaces and structures back to life, creating jobs and promoting tourism.

Essentially, it is anything that massively contributes to an area. In that regard, the public and private sectors join forces and use shared capital, knowledge and development expertise to spur economic development.

The private-public sector projects have economic advantages for both parties.

The private sector innovation and technology, for instance, can assist in providing better public service through enhanced operational efficiency.

On the other hand, the public sector offers incentives for the private sector to deliver different projects on time within the budget.

Moreover, creating economic diversification enables the country to be more competitive in facilitating its infrastructure base and improving the associated equipment, support services, construction and other businesses.

There are growth opportunities for private-public sector projects through different lenses such as increased investment in technology and capital, and the creation of clear rules that respect the environment.

Other opportunities involve promoting corporate social responsibility and enabling access to efficient financing and marketing.

Global Perspective of Private Public Sector Projects

The implementation and success of private-public projects are critical in achieving economic growth in different economies.

However, the delivery of private-public sector projects is time-consuming and costly for the private-public sectors.

There are also delays in the delivery of such projects with about 70 per cent of the projects being late, over-budgeted or failing to meet the requirements standards.

The technology employed and how information technology systems are implemented are usually similar in the private and public sectors.

The major theme of project delays is scope creep which emanates from a lack of ideal project portfolio management techniques and cost overruns.

The risks of not delivering projects as required to the national government on time, within the scope and budget remain high.

Over 50 per cent of government projects are usually deemed medium or high risk across the world.

The need for essential and effective project portfolio management reveals a big problem in private and public sector projects.

There is a need to utilize proper project portfolio management techniques in the management of projects.

In 2020, research conducted by Project Management Institute (PMI), the leading global project association, indicate that there is an overall laxity in the implementation and running of the projects which results in poor performance of the projects.

PMI noted that for every one billion dollars spent on projects, about 150 million dollars is lost and not recoverable.

PMI also noted that there are more than 90 million dollars in losses for every one billion dollars per use of poor project management tools and techniques.

The project managers and sponsors are therefore required to pay close attention to the potential risks, especially, the financial risks.

Private Public Sector Projects in Africa

Even though the economies of Africa have grown substantially in the last decades, the economic challenges in Africa have faced monumental in scope.

Africa supports more than one billion people. However, about 600 million do not have access to electricity while about 300 million do not have access to safe water.

The fundamental solution to assist in combating the vast problems related to service delivery and infrastructure is the Public Private Partnerships Projects.

The progress of private and public sector projects has been dwindling in the past.

The major reason for the limited number of PPPs in Africa, especially in the water and sewage sectors is due to some constraints such as inadequate regulatory and legal frameworks for PPPs, limited infrastructure.

Other factors are: The limited role of Africa in global trade and investment, limited financial markets, small markets, lack of technical skills to manage the PPP programs and projects and unfavourable investor perception of country risk.

Simply put, several companies believe that the probable reward of a PPP venture into Africa is overrun by the potential risk.

However, the belief that Africa is an attractive investment destination can be held by a company, especially if it has ventured already into Africa.

Generally, in Africa, PPPs have remained to be far-reaching as well as widespread. The benefits of PPPs are many when it comes to fueling economic growth in sub-Saharan Africa.

The projects spur investment opportunities in human development and secure basic utility services.

In South Africa, for instance, the PPPs present a lot of opportunities for the professional development of the project staff, enhancing skills and knowledge improvement.

Aside from vocational empowerment, the PPPs usually serve the interests of the public through increasing capacity-building efforts and establishing a sound environment for a significant buildup of strategic infrastructure.

Therefore, the PPPs are a way for the government to attain the much-needed expertise for economic growth and private sector investment.

Compared to other continents, the involvement of Africa in PPPs has been limited.

Private Public Sector Projects in Kenya

In Kenya, a PPP involves a performance-based contract where the Private Sector supplies public services over time and is paid by the end user, the public sector or both.

Output is strictly specified by the Contracting Authority while input remains the responsibility of the private sector.

The Public Private Partnership (PPP) framework has for a long time allowed the Kenyan government to implement essential and high-quality projects such as infrastructure projects in the roads and energy sectors.

These infrastructure projects have assisted in buttressing and building resilience in the Kenyan economy. That helps the country in achieving its full potential.

Kenya is keen on the PPPs since there is an increase in demand for affordable and quality services from the citizens-water and sewerage, power, telecommunications, transport and social services.

The country also has a keen eye on reducing the funding gaps for infrastructure; providing a new source of investment capital for required infrastructure projects, drive the creation of a local long-term funding market.

Additionally, it seeks to reduce Government sovereign borrowings and associated risks, utilize efficiencies of the private sector in running public services and expanding the economy and stimulate job creation.

Kenya's Vision 2030 aims to the transformation of the country into an industrialized middle-income country.

The efforts need heavy investments in infrastructure services. This remains the major area of focus to facilitate economic growth and development.

There are other factors such as the legal system, which is based on common law, conducive to the development of PPPs.

The Kenyan constitution also offers stability to the governance and democratic institutions. There is also the existence of a conducive regulatory framework in the utility sectors to facilitate PPPs (energy, ICT, Transport).

There are hopes that Kenya's economy will greatly improve through the enhanced use of PPPs in providing services and infrastructural development to its citizens.

The merits that Kenya stands to gain when it adopts the use of PPPs far outweigh the demerits of using the same. Using PPPs will ensure that the livelihood of Kenyans improves because the country will transition from a developing country to a developed country.

Private Public Sector Project Success

Although every private-public partnership project is unique, the success of the sector is a common aspect that must be examined.

There must be critical approaches that ensure that there is a successful implementation of the private-public sector projects.

One of the fundamental factors that must be considered is political and legislative support.

The political leadership for an area of the proposed PPPs development must be adequately prepared to give the team that is responsible for the development, procurement and delivery support at all stages of the project.

Moreover, financial guarantees must be enforced, demonstrating the jurisdiction is prepared to make payments for the success of the PPPs projects.

The measurement of private partner performance is another key metric that must be analyzed for the success of the PPPs.

The success of a PPP arrangement usually depends on the ability of the private partner to effectively manage risks.

The approach to managing risks takes the form of economies of scale during the process of design and construction.

Separation of the performance of the private partner from various activities related to the project is vital.

When deciding whether to continue with the PPP arrangement, the proposed project complexity is an important consideration.

It is also crucial to consider the sufficient market capacity and interest for the success of the PPP. The level of interest in the project from the private partner community is an essential success factor; thus, the public sector entity does want to throw a party that no one wants to attend.

Thus, the jurisdiction must engage in a robust market-sounding process before publicly announcing the project.

Finally, sufficient operations and maintenance components are also important.

The ability of the public sector to benefit from the efficiencies of the private sector partner from the operations and maintenance component of the proposed project directly impacts the success of the project.

The public sector must have a clear blueprint and understanding of the various elements of maintenance and operations it is prepared to transfer to the private sector.

In general, many of the most influential and innovative developers have made public-private partnerships significant elements of the overall strategy.

They have known what works and what does not work. They have also recognized that attaining a public-private partnership is a skill, and getting that skill can be learned.

The payoffs for learning a given skill can be immense, not only for the developers but for the communities that continue to benefit from iconic and defining new destinations and extraordinary new public resources.

The writer, Chris Diaz, is a Business leader and Brand Africa Trustee