A Public-Private Partnership is an agreement between the public sector and the private sector for the purpose of designing, planning, financing, constructing, and/or operating projects that would traditionally be regarded as falling within the remit of the public sector.
The trend towards Public-Private Partnerships (PPPs) has continued to take shape with numerous developing nations across the world realizing that economic development should not be limited to the framework of either public or private sector, and that the two can work together to accelerate economic development.
Kenya as a developing nation has witnessed the pros of PPPs in different thematic Real Estate sectors including infrastructure, tourism, and, housing among others. This has been made possible due to shifting the development, maintenance, and operational risk onto the private sector often resulting in higher quality and overall better results as the government capitalizes on private sector expertise. We have witnessed progress of PPPs in Kenya by numerous projects attaining financial closure and confirming the benefit of the partnerships in project delivery. A case example is the recent launch of the 27.1 km Nairobi.
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Expressway on a trial basis, a PPP road project between the National Government through the Kenya National Highways Authority (KENHA) and the China Road and Bridge Construction Corporation (CRBC) on a Build-Operate-Transfer (BOT) model.
The Kenyan government’s consideration to use PPPs to deliver development projects has proven to be beneficial due to:
- Access to Finance for Projects,
- Risk Transfer to Private Sector,
- Government Access to Private Sector Efficiencies,
- Large Scale Investment and/or Development,
- Enhancement in Ease of Doing Business, and,
- Institutional Grade Projects.
- Despite the benefits, PPPs have fallen short in achievement of development initiatives attributed to:
- Inadequate Planning for PPP Projects,
- Lengthy and Irregular Procurement Processes,
- Insufficient Bulk Infrastructure Required to Support Development,
- Differing Goals Between the Private and Public Sector,
- Bureaucracy and Lengthy Approval Processes,
- Inadequate Risk Mitigation Strategies, and,
- High Transaction Costs.
In this week’s report, Cytonn Investments conducted an analysis of the PPP sector in Canada which has a total of 291 active PPP projects worth USD 134.5 billion in sectors such as Health, Transport, Water, Accommodation, Energy, among others with 68 on the pipeline.
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Some of the lessons from the case study include:
The need to have a strong supportive Regulatory Framework: The government of Kenya has made a great stride in improving the regulatory framework for PPPs through the PPP Act 2021, especially in matters of concession period. It should now consider ensuring that all the processes are clear in regulations to ensure that projects undertaken to ensure value-for- money just like the Canada model which has a clear framework for procurement and risk analysis of projects before implementation. It can also consider amending regulations and legislation to exempt smaller projects from onerous requirements, taking specific conditions into consideration,
Decentralization of PPPs: In the future, the government should consider decentralizing PPPs from the National Government to County governments as seen in Canada where management of PPPs is decentralized to provincial and municipal governments. This will encourage uptake of PPP projects and enhance development activities at the county level. In this line, it will reduce the bureaucratic processes for getting contracts at the national level and provide options for investment in different counties, and, ensure that county governments are more involved in the country’s economic development,
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Financing for Projects: The government should incorporate provisions for supporting PPPs for example ensuring that there is budgetary allocation to the Kenyan Project Facilitation Fund which supports Contracting Authorities in project preparation, supports funding gap and offers contingent liability support. This will help make projects commercially viable for private investors for example just as the case for Canada where the PPP fund has budgetary allocation. The option of diversification through bond issuance should also be supported to increase the financing pool, and,
Housing Related Recommendation: Given Housing as a Big Four Agenda item, Cytonn has the following recommendations;
i. The government should focus on intensifying the role of the enabling the private sector in construction through implementing incentives to meet project delivery timelines; since announcing the Big Four agenda about 4 years ago, the government has delivered less than 1,000 houses so far thus falling short of the annual 500,000 target. Private sector players with the right incentive will accelerate delivery,
ii. The government should focus on financing and infrastructure incentives such as diversifying the role of capital markets in pooling resources for private developers instead of looking at land as an important component. There is no shortage of land, as there is a lot of private land looking for Joint Venture partners.
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iii. Provide housing infrastructure incentives in areas such as roads, sewer, water and power, either through delivering them or providing rebates for developers who put them up, and,
iv. Expedite statutory approvals for developments that are registered as part of the Housing Agenda.
In conclusion, Public-Private Partnerships (PPPs) in Kenya are becoming an emerging trend in facilitating economic development. In our view, the country will benefit from these partnerships by enforcing a regulatory framework that supports private sector engagement, ensuring strict adherence to the project timelines and streamline procurement processes. We therefore expect that PPPs will continue enhancing development in the country and thus fast track achievement of industrialization.
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