Public-private partnerships and regulation

Public-private partnerships and regulation: development strategies

During the 1980s, the inefficiency and alarming financial situation of African public enterprises led the development community to promote a market-economy culture within these firms in order to improve their commercial operations. As the resulting decade of public enterprise reform programmes yielded rather poor results, the reforms of the 1990s focused on the promotion of the private sector in Africa, not only in the competitive productive sectors but also in public services. Indeed, the contribution that a private operator (often a foreign company) could make through its management experience and investment financing capacity was presented as the only means of putting public finances on a sound footing and at the same time achieving public service goals (in particular, connecting the population to utility infrastructure networks). As public perceptions of the concept of “privatisation” were strongly negative, and as countries wished to retain responsibility for these sectors, the “public-private partnership” (PPP) model, based on a confluence of interests and risk sharing between the parties, was seen as a particularly apt solution for meeting the substantial needs of the countries concerned.

 

The results of the first PPP experiments in the infrastructure sector in Africa, though difficult to assess as yet, appear to be disappointing: financial and political problems, contract renegotiations that in many cases have led to the surrender or non-renewal of the contract, undershooting of service improvement objectives (initial objectives were often too ambitious), unequal distribution of beneficiaries, negative perception by public opinion. Today, the model is experiencing difficulties, in terms of both attracting private firms and convincing governments to enter into such partnerships. A few positive experiences, however, offer encouragement to consider the issue in greater depth and recognise the limitations of the approach in order to promote lasting solutions, even if this means broadening the scope of the PPP model beyond the traditional schema of delegating management of utility infrastructure to a foreign company. PPPs could be envisaged in sectors other than infrastructure (e.g. health, education, vocational training) and especially with different partners, such as local firms, civil society, and local and regional authorities. As such partnerships require a long-term relationship of trust between the parties, the necessary conditions for their success need to be clarified in the African context, which is in many cases characterised by a weak state subject to various forms of predatory behaviour, a largely undeveloped and informal private sector, and a generally insolvent and poorly represented population.

In September 2005, the Research Department initiated an effort to capitalise on AFD’s experience with PPPs, in an approach combining economic analysis (contractual incentives, financing of investment, etc.) with a sociological and political approach to regulatory issues. A dozen case studies have been conducted in various infrastructure sectors in Africa (water, power, transport).

The scope of this research programme will be extended in 2008 to include other countries, such as India and Brazil, and broader topics (regional regulation, the role of institutions, linkages to production of global public goods).

Corresponding research officer : Aymeric Blanc

Associated Documents to this Research Program

Past seminars on this topic (seminar reports):

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