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Although Public Private Partnerships (PPPs) are often hailed as one the best options for infrastructure development, there appears to be surprisingly little understanding amongst policymakers of what they actually entail. This is even more so in situations of fragility. In a recent policy paper published under the West Africa Policy Notes series of the African Development Bank, I undertook to highlight what are the advantages and pitfalls of PPPs in the context of Guinea-Bissau and provide recommendations on the best course of action for pursuing development in the country.
What is there for Guinea-Bissau?
In March 2015, Guinea-Bissau convened an international donor roundtable that was attended by several development partners, including the African Development Bank. The roundtable had two-fold objectives: first, to mark the return of constitutional order after the 2012 coup d’état; and, second, to heighten awareness of the difficult development challenges in post-crisis Guinea Bissau. During the event, the government presented a 10-year long-term vision together with a shorter but more precise strategic and operational plan dubbed “Terra Ranka”. This plan consists of a total of 116 projects which require financing in the short-term in eight key sectors. The total pipeline tallied up to €2 billion. In terms of project numbers, the vast majority, 91 projects (or 78.5% of the total) are to be financed through public funding and the leveraging of concessional financing from partners. The remainder is due to be financed with private sector involvement alongside the public sector. In terms of financing however, forms of public private partnerships are expected to account for about 46% of the estimated project costs – that is about €940 million.
According to the authorities, energy is a priority sector. The country faces a serious energy crisis, with production capacity of about 11 MW, of which 5 MW are operational. While partners have approved several key projects in the field, there are potential PPP projects such as the (estimated) 20 MW Saltinho hydropower plant or the eventual set-up of a management contract of Eletricidad e Agua da Guiné-Bissau, the national Water and Electricity Company. Telecommunications are also a sector of potential interest. In the list of projects presented, the reform of Guiné-Telecom (fixed line operator) and its Guiné-Tel (mobile operator) subsidiary could open the way to further opportunities. Potential trade and transport PPP projects range across several sub-sectors, but also across different types of partnerships. Port facilities are prominent, in particular the port of Bissau.
Opportunities are manifold, yet they are subject to many caveats – in particular based on the country’s prevailing conditions. First, the Guinea-Bissau suffers from rather weak institutional capacities, as exemplified by Figure 1: using the African Development Bank’s Country Policy and Institutional Assessment (CPIA) ratings, Guinea-Bissau lags behind much of the rest of the continent in areas which can influence the PPP framework.
Figure 1: Institutional performance in selected areas linked to PPP development
Sources: CPIA 2014 Scores, AfDB. Higher score means better governance or economic management
Second, it has a history of political instability. Indeed, political upheavals have not allowed for steady flow of investment. Poor governance, defined by rating political issues and events is positively correlated with poor control of corruption (Figure 2), and thus very detrimental to investments.
Figure 2: Institutional Vagaries and Corruption
Source: World Bank, Country Economic Memorandum 2015
Against this background, for PPPs to be successful, Guinea-Bissau should first put in place the right policy framework. This would first mean that the economic fundamentals of projects must be well-grounded. Second, costs, revenues and the investment required must be well understood, as should other assumptions such as usage. In addition, actual in-house capacity to operationalize the PPP remain key. Affordability is also important, and considering low income levels in the country, there could be issues in terms of bankability (i.e. the impossibility of setting cost-reflective prices which would be too high for potential consumers). This could however be solved with specific subsidies.
Third, the legal framework is crucial in PPP frameworks. In 2007-2008, Guinea-Bissau undertook to modernise its regulatory framework with the assistance of the Private-Public Infrastructure Advisory Facility. The initial findings of the Facility were that the government’s approach at the time lacked consistency, in particular due to: (i) the absence of a clear separation of responsibilities for government institutions involved in PPPs; and (ii) the coherence of a regulatory framework (World Bank 2012). Also, as implied earlier, quality of public financial management is also a crucial ingredient. As noted by the IMF, much work needs to be undertaken in this respect.
Last but not least, political stability is crucial. As hinted above, continued political stability is a condition sine qua non for a successful PPP programme in Guinea-Bissau.
PPPs are a financial tool amongst others. It is not a panacea. As for Guinea-Bissau, and countries in similar conditions, some recommendations stemming from the above, would include, amongst others, in the paper:
- Undertake a gradual approach to PPP projects. Considering the underlying weaknesses, it is recommended that the country should avoid moving fast on all fronts. Instead, it is advisable to start small with a project or two off the list presented in the “Terra Ranka” plan, learn the lessons and get them right.
- Accumulate experience of fiscal responsibility. Sustained growth is also important since it shows increased affordability (both from government to meet its obligations and from eventual users-payers).
- Readjust the core regulatory requirements and clearly delineate vital PPP tasks amongst officials. Once in place, clearly identified teams that should start getting the necessary training.
- Make full-use of instruments and expertise that development finance institutions can offer to accompany the country in improving its PPP Framework.