23 Sept, 2022
Challenges in Public Private Partnerships for Infrastructure Development in Zimbabwe
In Zimbabwe public private partnerships (PPPs) were mooted in 1998 as a viable tool for unlocking private sector support in funding maintenance and development of critical public infrastructure and public services. This happened after the government’s commitment to the projects through the public sector investment programme fell precipitously the mid-1990s as a result of the implementation of its Economic Structural Adjustment Programme (ESAP).
Public Private Partnerships (PPPs) are generally mooted for the mobilization of funding and expertise for infrastructure that is considered key for economic development. This more so in instances where a government has limited resources and the assets involved are considered too critical to be placed wholly in the hands of the private sector. In the process, PPPs produce a win-win situation to both the private sector and government as both parties stand to benefit.
In Sub-Saharan Africa (SSA), PPPs have recently emerged as one of the ways to overcome the constraints faced in developing countries, namely, the scarcity of public funds, corruption, poor planning, poor project formulation as well as inefficient capacities. In particular, PPP arrangements are being implemented in toll roads, ports, prisons, telecommunications, eco-tourism and water and electricity provision. Some of PPPs with great degree of success in SSA and beyond include, water provision in the Dolphin Coast/Llembe District Municipality/South Africa; Toll Road from South Africa to Mozambique; Maputo port, Mozambique; Multi-Utility Provision in Gabon; Taints Power Purchasing Agreement in Tanzania, and Eco-tourism Concession in South Africa. This involvement of the private sector is important for the implementation of the African Continental Free Trade Area and achievement of the 2030 Sustainable Development Goals (SDGs).
This article examines why PPPs have occurred; the current legislative framework regulating PPPs and some of the lessons that can be drawn from previous projects involving the PPP model in Zimbabwe. The major finding is that there is a generally low uptake of PPPs in Zimbabwe.
PUBLIC PRIVATE PARTNERSHIPS DEFINED
Public private partnerships are on-going agreements between government and private sector organisations in which the private organization participates in the decision-making and production of a public good or service that has traditionally been provided by the public sector and in which the private sector shares the risk of that production (Forrer et al., 2010).
Therefore, the main characteristic of a PPP, compared with the traditional approach to the provision of infrastructure, is that it bundles investment and service provision in a single long-term contract. PPPs are therefore, by nature, intended to obtain more “value for money” than under traditional public procurement options, and when correctly implemented, can result in reduced life-cycle costs, better risk allocation, faster implementation of public works and services, improved service quality and additional revenue streams.
LEGAL AND POLICY FRAMEWORK FOR PPPs IN ZIMBABWE
A sound regulatory framework is one of the variables upon which the success of a PPP depends. Following the trend of various international law instruments and the need to address the continued dilapidation in existing public infrastructure, Zimbabwe recently established a legal framework for PPPs.
The long-awaited Zimbabwe Investment and Development Agency Act (ZIDA) (Chapter 14:37) which was enacted in February 2020 has been a milestone in this regard. Of paramount importance to PPPs, the Act repealed the Joint Ventures Act (Chapter 22:22) which used to regulate PPPs. The Joint Ventures Act identified the necessity of establishing PPPs in infrastructural development but offered no clear legal or operational framework for the establishment of these PPPs.
A new entity, the Public Private Partnership Unit, formed under ZIDA, replaced the Joint Venture Unit, with various responsibilities to the investors. The responsibilities include considering project proposals submitted to the Unit and assessing if they are affordable to the contracting authority or if they provide value for money. The Unit further provides for the optimum transfer of technical, operational and financial risks to parties in the partnership. It also assesses if the partnership is competitive and makes recommendations to Cabinet on such proposals through the CEO. The Unit is mandated to develop best practice guidelines in relation to all aspects of PPPs and to formulate suggested policy in relation to PPPs for adoption by Government. It is also mandated with developing awareness of PPPs in Zimbabwe as a vehicle for economic development and delivery of public services.
However, there still remain a number of challenges to implement and operationalize the PPP financing model in Zimbabwe.
HISTORICAL PERSPECTIVE ON PPPs IN ZIMBABWE
Earlier projects in the country included the Beitbridge Railway (BBR), the New Limpopo Bridge and the Newlands By-Pass in Harare. All the three projects were done on Build Own Transfer basis (BOT). The Limpopo Bridge was awarded to a private investor in 1993 by the Governments of Zimbabwe and South Africa. The Beitbridge Railway project involved the construction of a 350km railway line between the South African border and Bulawayo. More recent projects include the Infralink Road Project involving the re-construction and rehabilitation Zimbabwe’s highway roads and other Local Government projects such as the City of Harare Easy Park Project. The Zimbabwe Power Company (ZPC) has also engaged several private investors on several power generation expansion projects, including the Kariba South Power Station, which was awarded to Sino Hydro, a Chinese-owned entity. In addition, the Government has some experience with contracting out services in the laundry sector for the Parirenyatwa hospital aimed at improving service quality in that hospital, the Chitungwiza Central Hospital, the Kunzvi Water project, and Beitbridge Redevelopment located at Beitbridge border with South Africa.
CHALLENGES FACED IN THE IMPLEMENTATION OF PPPs
Poor Creditworthiness and Slow Pace of Public Enterprises Reform
Most of the infrastructure providers in the country are public enterprises that require restructuring before any private sector participation can take place. Although PPPs offer a unique opportunity for these parastatals to recapitalize, their current poor performance poses too high a risk for private investors. Most public enterprises have been under-performing over the past decades, with their accounts not being properly audited. It is also a well-known fact that Zimbabwe’s public enterprises have very low sales volumes and low revenue collections owing to structural bottlenecks, inefficiency and the economy’s liquidity crisis. A greater proportion of these entities are also both under-funded and heavily indebted, which undermines their creditworthiness and therefore resuscitation. Their restructuring will therefore have to institute changes in their service delivery mechanisms, processes, procedures and institutional structures in order to address some of the supply side constraints crippling their operations.
Public Sector Capacity Constraints
Although PPP provide opportunities for infrastructure rehabilitation and improvement abound in Zimbabwe, finding projects that are well defined, credibly structured, rigorously appraised, and financially viable is still a big challenge. This is attributed to insufficient capacity within the PPP sponsoring public entities to identify and implement deals and execute PPPs. This capacity deficit is seen as a big challenge for achieving a steady flow of successfully negotiated PPP deals. It is important to note that PPPs for infrastructure rehabilitation and improvement extend for long periods of time and involve complex financial, risk, and performance arrangements. Specialized skills are therefore required to conceptualize, evaluate, structure, and appraise the projects. These skill sets include assessing financial projections and revenues, effective ring-fencing of the project, risk appraisal and allocation or mitigation, contract monitoring, tariff adjustments, and dispute resolution.
High Country Risk
Due to negative political perceptions abroad, the country is struggling to access finance at reasonable interest rates. Government investment in gross fixed capital formation has declined over the years reflecting the country’s difficult fiscal position. Foreign investors who could potentially partner with the Government to finance public infrastructure remain wary of the perceived high-country risk. This has resulted in punitive interest rates being applied by financiers on PPP investment loans.
Corruption has been identified as one of the factors increasing the total project cost in Zimbabwe, and has resulted in some instances, in budget overruns or changes in project scope during the implementation phase. Corruption frustrates and disenfranchises both existing and potential PPP partners as it erodes profits and confidence. Institutional reforms that foster transparency and enforcement of contracts have been identified as some of the strategies that can complement the efforts of the anti-corruption commission.
Lack of a culture of maintaining infrastructure
It is also important that the rehabilitation of public infrastructure be preceded by a deliberate policy on the part of the Government to ensure that there is a culture of maintaining the infrastructure after it has been constructed. The Department of Public Works, for example, should ensure that it has in place a programme to ensure that all public infrastructure is adequately maintained, to avoid the deterioration of infrastructure once the private sector exits the contract.
Although the rules and procedures laid down in the ZIDA Act increase the relevance and potential of PPPs, the marginal progress in the uptake of PPP projects can be attributed partly to poor contract negotiation, poor contract management, a lack of expertise and capacity on the local government level, prevalent corruption, and political interference.
The adoption of solutions to ameliorate the problems identified above will assuredly reveal, with time, that PPPs have the potential to unlock the much-needed financial resources to fund major infrastructure projects in the country’s power, telecommunications, transport, water, education and health sectors.