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

Lebombo corridor and Port of Djibouti show how PPPs can improve networks and boost competitiveness

Africa’s economic growth has been impeded by its trade infrastructure gap, especially trade transport. Transport costs in Africa are up to three times higher than those in developed countries, causing missed opportunities, 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. However, by making the right investments and forming partnerships African countries can improve their transport 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 role in bridging Africa’s trade infrastructure gap, creating a more efficient and integrated transport 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 buildoperate-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 improvements in trade transport infrastructure, reduced costs and increased competitiveness for the region. It includes the construction of a four-lane highway, a new bridge and 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.

The partnership involved the governments of Mozambique and SA, as well as 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. Though not without shortcomings, this PPP has had a socioeconomic impact, with a 22% reduction in logistics costs, an increase in cargo volumes and new employment opportunities. The Lebombo corridor has also attracted investment from local and international investors.

The Port of Djibouti is an example of a port development in Africa that was developed as a PPP between the Djibouti government and Dubaibased port operator DP World. The partnership has since transformed the port into a 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 improved 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 growth, recording a throughput of 1.4-million 20-foot equivalent units (TEUs) in 2019, an increase of 4.5% from the previous year. This has led to the development of other infrastructure projects in the country, including the construction of roads and the expansion of the railway network.

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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 implementation challenges, including corruption, political instability and weak legal systems.

Corruption can result in biased decisionmaking, 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 longterm investments, and weak legal systems can discourage private investment by leading to contract disputes and expropriation.

To address the challenge of weak legal systems 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 projects and ensure successful implementation.

African 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 strides in implementing these practices, including establishing a PPP unit in 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 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 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 their economies, unlocking new opportunities for growth and prosperity.