Unpacking why PPPs failed in Zimbabwe
In Zimbabwe public private partnerships (PPPs) were mooted way back in 1998 as a viable tool for unlocking private sector support in funding maintenance and development of critical public infrastructure and public services 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). The then Acting Minister of Finance and Economic Development, Dr Murerwa opinioned that ‘the development of these Guidelines benefited from governments consultations with stakeholders and that the guidelines provide the parameters for the development of the appropriate legal and regulatory framework, to protect the interests of the investors and consumers’.
Specifically, the guidelines indicate the criteria and procedures for the award of contracts, including the principles and elements of the implementation process of Build-operate-Transfer and Concession projects. They state that PPPs shall take various forms such as management contracts, leases, concessions, de-monopolization and full divestiture (sale) of enterprises where possible. They also indicate the specialized institutional arrangements to facilitate the promotion and co-ordination of the PPP process and project implementation and monitoring; and termination of contracts. Potential sectors for PPPs are also identified, and so are guidelines for the financing of PPPs and incentives by the government.
Despite the above early developments, to date, no meaningful PPP initiatives have been implemented in the country. This is because there are still some big challenges that need to be to overcome before private sector funds can start to flow into the country at the required rate. Some of these challenges are:
Inadequate Regulatory, Legal and Policy Environment
Although the private sector may be interested in undertaking the country’s infrastructure rehabilitation and improvement under PPP arrangements, there are still some weaknesses in the enabling environment for PPPs in Zimbabwe. The regulatory, legal and policy frameworks need to be improved. The fact that PPPs tend to fund projects that are long term in nature makes the issue of policy consistency and predictability a key pre-requisite for boosting investor confidence. What the present PPP framework do is to identify the necessity of establishing PPPs in infrastructural development but they offer no clear legal or operational framework for the establishment of these PPPs. Then, the situation was further worsened by the country’s uncertain and poor investment climate, where private property or property rights are not respected.
International experience has shown that private sector participation in infrastructure development requires a well-designed framework of policies in which investors have the assurance that standards of services will be maintained and concessions will be transparently awarded. Measures that fosters efficiency and transparency in the bidding process, ensure sanctity of contracts, and encourage competition are lacking in Zimbabwe. In the same vein, there was no promotion of market-determined tariffs, and separate regulatory and adjudication authorities. In addition, there is no PPP framework that helps in clarifying the role of government, regulators and utilities as well as harmonizing procedures and policies, and enhances public accountability.
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 volumes of sales and low revenue collections owing to structural bottlenecks, inefficiency and the economy’s liquidity crisis. A greater proportion 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.
Perceive Country Risk Profile
The country’s risk profile has also greatly contributed to the low uptake of PPP projects. Over the years, the country faced substantial challenges in accessing funding for its infrastructure rehabilitation and improvement programmes partly because the country does not have resources to take up PPPs, but also due to the prevailing political risks. The land reform programme, poor policies like indigenization policy, political and economic instability repelled potential private investors.
Public Sector Capacity Constraints
Although PPP opportunities for infrastructure rehabilitation and improvement abound in Zimbabwe, finding projects that are well defined, credibly structured, rigorously appraised, 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. The required skill sets include assessing financial projections and revenues, effective ring-fencing of the project, risk appraisal and allocation or mitigation, and other areas related to contract monitoring, tariff adjustments, and dispute resolution.
The South African PPPs Legislative and Regulatory Framework
In terms of how to best improve its PPPs legal and Regulatory frameworks, Zimbabwe can learn a lot from South Africa’s experience with PPPs. The country has the greatest cumulative experience of public-private partnerships in Africa, with over 50 such partnerships at the development or implementation stage at national or provincial level, and 300 projects at municipal level, since 1994. The South African National Treasury, the key ministry that approves these deals, has built on almost a decade of experience in dealing with PPPs, and has developed a PPP Manual and Standardized PPP Provisions to guide all projects of this nature. The South African National Treasury’s PPP Unit was set up in 2000 to oversee all PPPs at national and provincial level in terms of the Public Finance Management Act of 1999.
The government subsequently adopted a step-by-step process to PPPs, rigorously regulated by the Treasury. This sets out the progression from inception (requiring the appointment of a full time project officer and specialist transaction advisors), a feasibility study (which must obtain treasury approval), procurement (which is the actual negotiation and buy-in phase involving at least three treasury approvals), and contract management (which also entails treasury approvals if there are to be material amendments to the PPP agreement). The tests for the regulator at all phases are: affordability, value for money and appropriate risk transfer.
This partnership involves locking in long-term collaboration between both parties to share the costs, rewards and risks of projects — all the possibilities that things could go wrong — unlike the once-off transaction involved in public procurement (where government buys goods and services like offices, vehicles and computer maintenance) or full privatization (where government sells assets to the private sector).
More specifically, South African PPPs are governed by particular pieces of legislation, regulations and practice notes. The Public Finance Management Act 1 of 1999 (PFMA) and Treasury Regulations 16 and Treasury Practice notes issued in terms of the PFMA governs national and provincial government departments and public entities. The Municipal Finance Management Act 56 of 2003 (MFMA) and treasury regulations and Practice Notes issued in terms of the MFMA, govern the Municipal sphere. The act regulates the initiation of feasibility studies for PPPs, and the procurement of PPP agreements and the basic requirements that PPPs must comply with e.g. that it must provide value for money to the municipality (s5 (1)) which means that the performance of a private party in terms of the agreement will result in a net benefit to the municipality in terms of cost, price, quality, quantity, risk transfer or any combination of those factors. Further, the various modules of the PPP Manual and Standardized PPP Provisions are issued as Treasury PPP Practice Notes in terms of the PFMA. Similar Practice Notes are being developed for the municipal sphere and will be issued under the Municipal Finance Management Act (MFMA).
Whilst the PPP legislative and regulatory framework in South Africa has its limitations there are useful statutes which can be used as reference documents by the government of Zimbabwe to improve its own PPPs legislative and regulatory framework.
By: Dr Gift Mugano
Dr Mugano (Ph.D) is an Author and Expert in Trade and International Finance. He has successfully supervised four Doctorate candidates in the field of Trade and International finance, published over twenty – five articles and book chapters in peer reviewed journals. He is a Research Associate at Nelson Mandela University, Registrar at Zimbabwe Ezekiel Guti University and Director at Africa Economic Development Strategies.
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