From a strategic point of view, the Bank places strong emphasis on infrastructure and PPPs as intervention instrument to overcome the bottlenecks that have hampered developing countries' ability to attract foreign direct investments. In this perspective, the Bank intends to scale up infrastructure financing by leveraging its financial resources. The scaling-up will include PPPs as an intervention instrument to leverage additional resources from the private sector and improve risk transfer to the parties that are better equipped to deal with it.
The Bank's Private Sector Department (OPSD) estimated that "inadequate infrastructure is holding back Africa's economic growth by 2% each year and reducing firms' productivity by as much as 40%" and that "infrastructure financing needs are estimated at $93 billion per annum, with a financing gap estimated at USD48 billion".15 The same source is further stating that "On just about every measure of infrastructure coverage, African countries lag behind their peers in the developing world"16. The most comprehensive and detailed account on Africa's infrastructure needs is based on the project "Africa Infrastructure Country Diagnostic (AICD)", a multi-party financed undertaking that was commissioned by the Infrastructure Consortium for Africa (ICA) following the 2005 Group of Eight (G8) summit at Gleneagles, Scotland. The results of this initiative are presented in the 2010 publication "Africa's Infrastructure". 17 The recommendations were the followings:
■ Address Africa's infrastructure efficiency gap as a pressing policy priority;
■ Make greater efforts to safeguard maintenance spending;
■ Tackle inefficiency through institutional reform;
■ Include line ministries and budgetary processes on the institutional reform agenda;
■ Use administrative and regulatory reforms to get full value from existing infrastructure;
■ Pursue regional integration to reduce infrastructure costs;
■ Take a spatial view of infrastructure development priorities;
■ Rethink infrastructure social policy;
■ Find practical ways to broaden access to infrastructure services; and
■ Close the infrastructure funding gap.
The Bank's Private Sector Development Strategy 2004-2007 and its subsequent update 2008-2012 introduced PPPs as an instrument for Bank operations18. The New Partnership for African Development's (NEPAD) Infrastructure Project Preparation Facility (IPPF) established by the Bank in 2005 equally offered another stimulus for PPPs in Africa19. More recently, the Bank's new Private Sector Development Strategy 2013-2017 highlighted PPPs as key intervention instruments. Its operational priorities to address key structural and investment climate challenges include "support initiatives that improve the institutional and operational frameworks for public-private partnerships (PPPs); including strengthening the analytical capacity for their selection, evaluation and monitoring, as well as transaction-level project preparation" (AfDB 2013; p.10). Similarly, the Bank's 2013-2022 Ten-Year Strategy (TYS) equally emphasizes infrastructure development, regional economic integration, and private sector development, as main channels through which it will deliver quality and sustainable growth. The latest strategy bids on a wider use of PPPs, co-financing arrangements and risk-mitigation instruments to draw in new investors.
Within the framework of the Ten-Year Strategy and Private Sector Strategy, the Bank Group Industrialization Strategy for Africa, approved in April 2016 as one of the Bank's High-Fives, focuses on the development of industrial infrastructure and PPP frameworks. The Strategy aims at assisting to establish 30 PPP units across Africa by 2025 and help them structure their initial deals.
The Bank proposed developing project financing facilities to support PPPs for infrastructure in Africa. In July 2013, AfDB management presented to its board the concept note for the Africa 50 Fund (named for the $50 billion infrastructure gap the continent faces). The Africa 50 Fund is a response to requests from the African heads of state to create a mechanism to finance critical infrastructure. It is envisaged that the fund will have two components: project development and project finance. It is to be financed with $10 billion in equity and $40 billion in lending, and the initial aim is to raise $3 billion in equity.
Other Bank sector strategies such as the Bank Group Strategy for the New Deal on Energy for Africa 2016 - 202520, state that "Within its organization, the Bank will build the PPP Unit's capabilities to be able to adapt IPP frameworks to the local conditions, in collaboration with the countries. The Bank will also provide technical assistance support for countries to draft reforms to enable and/or scale up private sector participation.
For the Water Supply and Sanitation (WSS) sector interventions21, whether through debt or PPP, the private sector financing has not played a meaningful role.22 This can be ascribed to a number of factors such as the familiarity, primarily by the public sector, of the risk mitigation measures available for W&S investments, and the lack of awareness by the private sector, of the opportunities in the W&S sector, through the use of guarantees although available but not used.
In the Governance sector, the Bank strategy and action plan document23 stressed the strengthening of PPP policy, legislation and regulatory frameworks for infrastructure development as a work-stream for its Governance pillars while improving e the policy, legal and regulatory frameworks for Business Enabling Environment (e.g investment codes and tax regimes), of PPPs, including the analytical capacity for PPPs selection, preparation, monitoring and evaluation. By supporting PPPs and improving their policy and legal basis, this would also promote green private sector investments especially green infrastructure investments.
The Staff interviews which have taken place during the scoping mission undertaken in October 2016, confirmed the absence of formal specific guidelines for PPP transactions and the lack of coherence or coordination with other departments directly or indirectly involved in PPP such as OSGE. The sector departments which are involved in the preparation and appraisal phase intervene less in downstream activities. Furthermore, there is a lack of capacity at the regional level to originate and develop PPP in the region despite the existence of three (3) regional hubs in Nairobi, Pretoria and Abuja, created with the objective of strengthening country capacities in implementing PPPs.
Furthermore, there are no distinct structuring and due diligence procedure for PPP or any other Private Sector Operation (PSO) infrastructure project. All projects follow the same presidential directive for due diligence and structuring of PSOs. Advisory services and upstream activities are the weakest area in the Bank. Few capacity building were initiated by regional departments alone or with the help of the Africa Legal Services Facility (ALSF) particularly in East and North Africa. Origination of PPP suffers from same deficiencies as for all PSO transactions due to lack of experienced staff.
Procurement policies and procedures were revised to allow more flexibility in selecting PPP private companies with a specific guidance note for PPP. The involvement of the Procurement department in the due diligence activities helped Bank clients in applying good practices for the selection of the best private companies for PPP and also in contracting and implementing the PPP. Few RECs adopted best practices for PPP and procurement policies (West African Monetary and Economic Union-UEMOA for example). The major difficulties faced by governments are much more related to meeting the contractual obligations (budget, fiscal sustainability and social impact). PPP contracts are generally output-based contracts with O&M self-funding. This poses sustainability issues if shadow telling and maintenance contract are not in place.
The Governance Department (OSGE) is increasingly involved in analyzing the PPP policy framework, particularly the regulatory environment, with the PPP implementation framework, and in some cases, capacity building/strengthening activities. A specific coordination unit (focal point) with OSGE is in charge of coordinating ISPs and assist in implementing TAs in countries including fragile states. Furthermore, OSGE with its global budget support operations include some specific reforms or actions towards enhancing country capacity to host PPP projects and strengthen or establish PPP units. OSGE lacks specialized staff to handle PPP advisory services and to scale up PPP transactions using instruments such as partial guarantees or equity participation. Moreover, there are no explicitly PPP studies but some standalone ESWs to support PPP transactions and structure critical components. For example, advisory services were provided to governments and private companies in the railway sector in Africa but during the preparation or the structuring phase of infrastructure projects whereby Bank staff provide advices on the legal framework and PPP structure (Kigali railway and Abidjan-Lagos highway etc.).
Few PPP transactions were financed in the industrial sector, such is the case of the Industrial Park in Kenya (yet at approval stage). Some PPP transactions in social sectors (education or health) are under preparation (Nigeria Babalola University and Gambia Horizon Clinic). The sector departments such as OITC or OWAS lack expertise in PPP upstream activities, equivalent to IFC project services. PPP focal points and advisors at new VP front office are suggested within the new structure with a special unit with high level experts/resource persons.
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15 Presentation 'GAMA 2013 - Khartoum' by AfDB's PSD, Slide No. 11; Africa Infrastructure Country Diagnostic report, Finding 1: http://infrastructureafrica.org/system/files/Africa's%20Infrastructure%20A%20Time%20for%20Transformation%20FULL%20TEXT.pdf; a more detailed account is provided in the following 2010 co-publication of the Agence Française de Développement and the World Bank: http://infrastructureafrica.org/system/files/Africa%27s%20Infrastructure%20A%20Time%20for%20Transformation%20FULL%20TEXT.pdf; Part 1, Chapter 1
16 Finding 2: http://infrastructureafrica.org/system/files/Africa's%20Infrastructure%20A%20Time%20for%20Transformation%20FULL%20TEXT.pdf
18 The Bank Group Private Sector Development (PSD) strategies and policies date back to October 1989. A PSD strategy was approved in 2004, and was updated in 2008 to last through 2012. Emphasis was given to "the promotion of Public Private Partnerships (PPPs) by developing broader financing options, supporting training for business skills and brokering PPPs for basic services." (AfDB 2004; p. iv).
19 The New Partnership for Africa's Development (NEPAD) is an economic development program of the African Union. It was adopted at the 37th session of the Assembly of Heads of States and Governments in July 2001 in Lusaka, Zambia. It aims at providing an overarching vision and policy framework for accelerating economic co-operation and integration among African countries. Its Infrastructure Project Preparation Facility (IPPF) is a fund set to assist in developing high-quality infrastructure proposals and is managed by the African Development Bank since 2007/ 2008.
20 ADB/BD/WP/2016/23/Rev.3/Final ADF/BD/WP/2016/18/Rev.3/Final -3 June 2016 page 24
21 Leveraging Private Sector Investment in Water and Sanitation through the Use of Guarantees (Draft executive summary - October 2016) (Not released)
22 The only case is the Kigali PPP Water Supply project that is currently in the pipeline.
23 Governance Strategic Framework and Action Plan - Gap II) 2014-2018 (ADB/BD/WP/2013/119/Rev.2 ADF/BD/WP/2013/87/Rev.2 - 29 avril 2014) pages 7, 11, 13 and 17.