“For Africa, the most important step we can take to enhance our resilience overall is to focus on building the right environment for the protection of private sector investment,” suggested Kogan Pillay, Head of the Southern African Development Community (SADC) PPP Network. “This means stronger institutions, more encouraging legislation, more democratization and legislative protections within a recognized Public Private Partnership (PPP) framework.”
Certainly many of the wider challenges that have plagued Africa in the past are starting to be resolved. Rule of law and the spread of democracy have led to fewer wars across the continent and significantly more security. Bribery and corruption is at an all-time low in most markets, while economic growth and prosperity is nearing an all-time high. More importantly, maybe, is that Africa is quickly developing an affluent middle class and strong consumer markets that will, over the coming decades, make up a larger and larger portion of international trade.
But creating a more secure and politically democratic environment for foreign investment is only part of the challenge for Africa. The continent also needs to demonstrate that it has the political will, capability and capacity to design, develop and then follow through on investments.
“The catalyst in the SADC area was the recognition about 10 years ago that we needed a joined-up infrastructure plan for the region,” said Mr. Pillay. “That political support and prioritization set the tone for the region by showing that Africa’s governments and politicians were serious about setting the stage for private and foreign investment and doing whatever it would take to protect that investment.”
Progress has been strong since. In 2010, the SADC formed the PPP Network to help solve a few of the more critical challenges slowing private investment. One of the most important actions for the PPP Network was to help build capability and create funding mechanisms within the region.
“The truth is that capability is somewhat uneven, even across the 15-member SADC area which means that some markets may need more support than others,” added Mr. Pillay. “Therefore, we’ve focused on creating some pilot PPP projects in many of these markets so that we can quickly identify where more refinement may be needed and demonstrate that our frameworks are viable and secure. We also recently created and publicized a regional PPP framework for policy, legislation and institutional arrangements.”
The private sector will also have an important role to play in bringing greater resilience to Africa’s investment climate. For one, private funds will be required if Africa is to bridge the massive financing shortfall that is currently slowing development. But more must also be done to improve Africa’s capability and capacity.
“While most markets focus on improving the investment environment to attract private capital, some markets have seen the opposite work,” added Mr. Pillay. “In Lesotho, for example, an early – and very successful – experiment with a PPP for a hospital has led the government to conduct regulatory and policy reform to set the stage for further PPPs. In other words, it’s not a chicken and egg situation where regulation must precede investment.”
Interestingly, some foreign business people and investors have recently taken fright following a series of challenges to infrastructure projects and PPP arrangements across the continent. But in reality, these challenges should be cheered by the international community. “What these challenges show is that democracy is working well in Africa,” noted Mr. Pillay. “It’s not just the population that is now empowered to challenge decisions; companies and investors enjoy significant rights as well, both before the courts and in the arena of public opinion.”
All signs indicate that Africa is on the ascendency and – as its value on the world stage increases – investment will soon start to flow into the massive opportunities now underway across the continent. “I don’t think people outside of Africa truly appreciate the growth that is about to occur on the continent and few companies have yet taken the right steps to capitalize on the opportunities that Africa presents,” noted Mr. Pillay. “My message to them is to take another look at Africa today, and I think they will find a very supportive and resilient environment for investment.”
By DeBuys Scott, KPMG in South Africa