LETHABO SITHOLE: How public-private partnerships can oil the wheels of trade transport

Africa’s economic growth has been significantly impeded by its trade infrastructure gap, especially regarding trade transport. Transport costs in Africa are up to three times higher than those in developed countries, causing missed opportunities, significant revenue losses and increased costs of goods and services.

The infrastructure deficit costs the continent 2%-4% of its GDP annually, leading to a loss of $100bn a year, says the African Development Bank (AfDB). However, by making the right investments and forming partnerships African countries can improve their transportation networks, increase their competitiveness and boost intra-African trade.

Investing in efficient trade transport infrastructure is essential for African countries to achieve their economic potential. This infrastructure includes both soft infrastructure — such as customs procedures, documentation requirements and trade regulations — and hard infrastructure such as ports, railways and highways.

Public-private partnerships (PPPs) can play a significant role in bridging Africa’s trade infrastructure gap, creating a more efficient and integrated transportation network and spurring economic growth. PPPs are a collaboration between the public and private sectors to achieve a shared goal, with risks and rewards shared between the two parties. 

PPPs can take various forms, such as build-operate-transfer arrangements, concession agreements and joint ventures. These partnerships involve the government or a public agency working with private companies to design, finance, build, operate and maintain infrastructure assets.

In the context of trade transport infrastructure, PPPs can mobilise private sector financing, expertise and innovation, while also ensuring that public sector objectives such as inclusivity, sustainability and transparency are met. PPPs bring benefits such as accelerated project delivery, increased efficiency and cost-effectiveness, and improved quality and reliability of services.

The Lebombo corridor is an excellent example of a successful PPP that has resulted in significant improvements in trade transport infrastructure, reduced transportation costs and increased competitiveness for the region. It includes the construction of a four-lane highway, a new bridge, a border post facility and improvements to the existing rail and port infrastructure to enhance the movement of goods, services and people across Mozambique, Swaziland and SA.

Improving efficiency

The partnership involved the governments of Mozambique and SA, as well as several private sector entities including transport and logistics companies and financial institutions. Since its upgrade in 2011 the corridor has reduced travel times by 40%, with the road freight transport time from Gauteng to Maputo now only about 12 hours, down from 22 hours previously. Though not without its shortcomings, this PPP has had a significant socioeconomic impact, with a 22% reduction in logistics costs, an increase in cargo volumes, and new employment opportunities. The Lebombo Corridor has also attracted significant investment from local and international investors.

The Port of Djibouti is another example of a successful port development in Africa that was developed as a PPP between the Djibouti government and Dubai-based port operator DP World. The partnership has since transformed the port into a major gateway for trade between Asia and Africa, handling about 95% of Ethiopia’s foreign trade and serving as a transit point for goods bound for other African countries. The partnership has succeeded in improving the port’s efficiency, increasing cargo volumes and generating revenue for the Djibouti government and DP World.

Recent statistics show that the port has continued to experience significant growth, recording a throughput of 1.4-million 20-foot equivalent units (TEUs) in 2019, an increase of 4.5% compared with the previous year. The success of the Port of Djibouti has also led to the development of other infrastructure projects in the country, including the construction of new roads and the expansion of the country’s railway network. The port’s strategic location at the entrance to the Red Sea and Suez Canal, combined with its modern infrastructure and efficient operations, has made it an attractive destination for shipping lines and international investors.

The success of these PPPs highlights the potential for investment in trade transport infrastructure to unlock new opportunities for growth and development across the continent. However, despite their potential benefits PPPs are not a panacea for African countries as they have encountered significant implementation challenges, including corruption, political instability and weak legal systems.

Weak systems

Corruption can result in biased decision-making, non-transparent procurement procedures and rent-seeking activities that undermine PPP credibility. Political instability can create an unpredictable environment that makes it hard for private companies to commit to long-term investments, and weak legal systems can discourage private investment by leading to contract disputes and expropriation. 

To address the weak legal systems challenge SA has established a clear legal and regulatory framework for PPPs, including guidelines for procurement, risk allocation and dispute resolution. In addition, the country has created a PPP unit within the National Treasury to oversee PPP projects and ensure their successful implementation.

To ensure PPP success in Africa, countries must plan and execute their implementation carefully, following best practice. This includes using transparent procurement procedures to select private partners based on merit and ensuring the public sector retains control over the project’s objectives. Tanzania has made significant strides in implementing these best practices, including establishing a PPP unit within the prime minister’s office, developing a legal framework for PPPs, and using transparent procurement procedures to select private partners. 

Furthermore, realistic project outcome expectations must be established to avoid overly optimistic projections that can lead to unrealistic financial returns and project failure. Effective risk management is critical to mitigate the risks and uncertainties associated with PPPs, such as changes in demand, unforeseen costs and construction delays. Stakeholder engagement is also crucial to align PPPs with local communities and stakeholders’ interests.

For example, the Rwandan government has established a PPP Centre of Excellence that provides training and capacity building to public officials, private sector representatives and civil society organisations. The centre also facilitates consultations and engagement with stakeholders to ensure PPP projects are aligned with local priorities and needs. 

The adoption of PPPs evidently presents many opportunities for the public and private sectors in African countries. Through PPPs African nations can address their trade infrastructure gap, improve trade transport efficiency, and ultimately boost economic growth. To fully realise the benefits of PPPs African countries should adopt best practices that facilitate successful partnerships between public and private entities. By doing so, they can leverage PPPs to drive progress and development across various sectors of their economies, unlocking new opportunities for growth and prosperity. 

• Sithole is managing partner at Amila Africa, a legal practitioner and consultant in international business, trade & investment law.