Governments at all levels are encumbered with a myriad of challenges that impact negatively on sustainable development. Most times often than not, the resources needed to implement sustainable development projects are not readily available and when they are, due to the bureaucracy that exists in the government system, there are delays which lead to the death of such development strides.
In recent times, the Public-Private Partnership (PPP) model has been deployed as a driver to achieving sustainable development. It involves the private sector collaborating with the government for the provision of infrastructural assets and social systems that are traditionally provided by the government. While many governments have over the years reformed public utilities and systems without private participation, it has become a growing fad to seek finance and expertise from the private sector in order to ease fiscal constraints and increase efficiency.
Why is PPP necessary?
The importance of Public-Private Partnerships as a finance, management and maintenance option for sustainable development of infrastructure and social systems has been recognised in recent times due to the global realisation that there are better ways of financing, managing and maintaining infrastructures. The old argument, as to whether public ownership was always best or whether privatisation was the only answer, is simply out-dated.
PPP is applicable to medium to long term management contracts with investment requirements which may include funding, planning, building, operation, maintenance and divestiture. PPP arrangements are particularly useful for large complex infrastructure projects that require highly-skilled workers and a significant capital outlay to execute. The PPP model is also useful in countries that require the state to legally hold an interest in any public infrastructure but permits a level of private sector participation.
In Nigeria, the rate of population growth is not in tandem with the growth rate of the economy. Infrastructure and social systems needed to cater for the numbers are just not enough. Hence, bringing together the government and private sector in a long term partnership that is mutually benefiting is vital. The starting point, therefore, is the recognition of the contribution that the public and private sectors can each bring to the partnership in other to bring about development in the society.
Sectors in need of PPP in Nigeria
Budgetary allocations year on year since 1999 have seen capital expenditure not rise above 30%. Given the current peculiarities, Nigeria must spend $100 billion annually to finance infrastructure in order to close the deficit. Clearly, this figure cannot be solely provided by the government. The following sectors are in need of critical PPP interventions;
- Agriculture – Despite being the dominant economic sector with the greatest potentials for growth stimulation and poverty reduction, agriculture seems to have the poorest capital accumulation and the lowest quality of private sector investment in Nigeria. Nigeria’s agriculture is predominantly a low productivity traditional system relying on simple implements. Production is characterised by low levels of input use, low rates of investments in soil and infrastructural improvement, high risks and uncertainties.
- Education – Over the years, the responsibility of management, funding and supervision of education has solely been that of the public sector and this has caused a number of problems in service delivery in the educational system, most especially the decline in the standard of teaching and learning at all levels of education. Since the introduction of the public-private partnership projects in the educational sector and most especially the tertiary education sub-sector, the responsibility of management, funding and supervision of education has been a collaborative process between the public sector (Government at the federal, states and local government levels) and the private sector in delivering effective and efficient education services to Nigerians.
Health – According to the PWC outlook on the health sector, in 2015, the total number of healthcare institutions in the country stood at 3,500 with about 27% being publicly owned. With over 160,000 hospital beds as at 2015, the country suffers from a very low bed per thousand population of 0.9 (less than one) in comparison to countries such as South Africa at 2.29 and Japan at 13.32 in 2013. This low statistic has been a trend over the years as the number of beds has grown below GDP rates over the last five years. In addition to the lack of physical infrastructure required to adequately address the population base, existing structures suffer from obsolete equipment and lack of requisite infrastructure to expand/deepen medical specialisation. This has significantly limited the ability of healthcare institutions, in particular, the public sector hospitals, to align their services to the changing disease trends.
- Housing – Based on current figures, housing stock in Nigeria is estimated to be above 21 million units while estimated demand is between 38 million and 44 million units. In order to bridge the gap of 17 – 23 million units of housing, the government would have to spend a huge sum of $363 billion over N130 trillion at current rates. Clearly, the funds are not available, and according to the National Integrated Infrastructure Masterplan (NIMP), $ 95 billion of private sector funding would be required to bridge the infrastructural deficit in Nigeria.
- Power & Transportation – Nigeria aims to achieve a power generation capacity of 40,000 megawatts by the year 2020, and an approximate sum of N142 billion would be required to finance renewable energy projects in the country. With plans to provide the Nigerian population with reliable electricity by 2030, finding the right mix of local and foreign investment is critical to achieving success. With respect to transportation, all sub-sectors (rail networks, road networks, sea transportation and aviation), require adequate funding. Critical projects can benefit from the PPP model which would have a multiplier effect on the growth of the economy as jobs would be created and investments would diversify the revenue base of the economy.
Case Study – Targeted PPP grants: the P3 Canada Fund
The P3 Canada Fund was established in 2009 and is administered by PPP Canada, a Federal Crown Corporation. PPP Canada has an independent Board of Directors reporting to the Parliament through the Minister of Finance. The fund’s purpose is to encourage and improve project delivery by providing funding support to public infrastructure projects in 15 eligible categories proposed by public authorities, including provincial, territorial, municipal and regional governments. To meet the application criteria, projects must:
- Be well-structured and deliver value for money;
- Demonstrate substantial risk transfer to the private sector;
- Establish public benefits;
- Promote jobs and economic growth.
The amount of funding support, in combination with other direct federal assistance, is capped at 25% of the project’s direct construction costs, which include planning, bid costs and finance costs during the construction phase. The level, form and conditions of any funding support vary depending on the needs of a project. Generally, it comes in the form of non-repayable contributions to help the procuring authority afford payments to a concessionaire during or immediately after construction of the asset. The P3 Canada Fund is administered through annual public calls for projects, each with a different focus. As of December 2013, the fund had committed more than $700 million to at least 15 PPP projects in Canada.
Structuring PPP to work in Nigeria
Public-Private Partnerships in Nigeria are faced with challenges ranging from financial limitations, the dominance of public companies, corruption, and an inability of private companies to access affordable long term loans. Hence, the need for proper policy structures that encourages the partnership.
The following should be considered by government and can be pushed for by the private sector:
- Standardisation of principles, processes and documents – As PPP programs mature and governments grow more confident in their preferred risk exposure and procurement practices; the need to reinvent the wheel for each transaction lessens. Standardisation generates more efficient procurement (including making better use of advisors) and a stronger pipeline of projects.
- Incentives for deploying the PPP model – The world’s most vibrant PPP markets are those where the government sustains and advances projects through incentives. They can range from access to skilled resources and government oversight to budgetary stimulus through dedicated PPP funds, “alternative” funding sources or other financial assistance, such as guarantees.
- Retrospective evaluation of PPP projects and procurement – Retrospective scrutiny of projects is an important means of monitoring continued performance and ensuring transparency. Project-specific evaluations can include metrics related to financial and operational performance, contractual requirements and timely reporting.
In conclusion, economic competitiveness suffers when there is sustained under-investment in infrastructure and social systems. Closing the global infrastructure gap by 2030 will require an estimated $40 to 50 trillion dollars. With government revenues limited coupled with fiscal and political obstacles, it is imperative that the PPP structure in Nigeria is firmly established in order to create value for projects financing, delivery and maintenance.