Driven by the need for long-term investment in public infrastructure allied to tight government budgets and Margaret Thatcher’s free market economics, the UK government began to explore avenues of co-production of public services with the private sector in the early 1990s.
PFI, as it was called in the UK (Private Financing Initiative) spread quickly across sectors and took various forms, depending on the exact role that each project assigned to the private and public sectors. Almost 30 years on, the concept of PPPs has become influential globally, as countries face tight budgets while still needing long-term investment in public infrastructure.
In Africa, the lack of adequate and well maintained infrastructure remains a major constraint to economic growth. According to the World Bank, the annual financial requirement for infrastructure in Sub-Saharan Africa (SSA) is about US$93 billion a year for both capital expenditures and maintenance. To finance this, only US$45 billion is being mobilised, two-thirds paid for by African governments and citizens, 8% by multilateral and bilateral donors and the rest by the private sector in emerging economies. There is therefore an estimated funding gap of US$50 billion a year.
Unsurprisingly, increasing private investment is seen as a key strategy. As Clive Harris, Practice Manager in the Public Private Partnerships Group of the World Bank says: “Strengthening private investment in infrastructure in the world’s poorest countries is a priority for the World Bank Group. We are committed to working with development partners to address and de-risk challenging environments, in order to attract more private sector investment in a broader range of countries.”
The figures show that the strategy is yielding dividends. According to the annual report of the Private Participation in Infrastructure Database, investments amounting to US$2.9 billion reached financial closure for 14 projects across seven International Development Association (IDA) countries in 2016. These are mainly in economic (physical) infrastructure, such as power, transport, telecommunications, and water and sanitation.