Risk and Uncertainty surround Africa’s Megaprojects

If all goes to plan, the ‘Grand Inga’ hydropower scheme will become one of Africa’s most iconic infrastructure developments. A $12 billion proposal funded by a consortium led by the World Bank, Democratic Republic of Congo (DRC), China and USA, was originally conceived in the 1950s, but plans for the project were never fulfilled, due to a lack of consensus on equitable terms and deal structure. Later in 2009, having unsuccessfully floated tenders for the development with private investors, the DRC decided to implement the scheme as a public-private-partnership (PPP). On completion, the dam would generate up to 48,000MW, with a power line stretching more than 5,000km to South Africa, through Zambia and Namibia. It is a megaproject in every sense and an interesting case study to highlight the risks and uncertainty surrounding Africa’s growing list of megaproject infrastructure.

Transformation in technology, political and social networks, driven by globalization has put huge pressure on countries to become ever more competitive, to develop viable policies that support sustainable development. To achieve this, governments are increasingly compelled to allocate public resources for infrastructure developments in the form of megaprojects (with budgets in excess of $1 billion), but whose ambitions are derailed by sovereign risk, in part due to flawed, ineffective policy-making and resource constraints.

Transparency, Politics and Governance

It is arguable that megaprojects are faced with poor performance in terms of achieving sustainable outcomes, and a lack of public support due to severe delays, cost overruns and unrealised benefits. Despite this, more and more of these structures are being constructed, globally. Indeed, Africa has not been immune to this malaise. The past decade has seen a sharp rise in the magnitude and frequency of major infrastructure projects across the continent, driven by an unprecedented economic boom from oil, natural gas and mineral resource discoveries, and supported by local, national and foreign governments, plus private equity capital and development financial institutions. Governments are looking to develop collaborative partnerships to improve infrastructure networks and enhance service delivery in their countries. Lately, the development finance model, of collective responsibility and shared risk allocation, has been adopted as the ‘best-in-class’ to unleash sustainable outcomes. But, megaprojects are a mammoth beast to contend with; many fail the ‘value-for-money’ test, consistent in cost overruns and lower-than-predicted revenues. In some cases, environmental impact assessments are not taken into account during the development phase. It seems that the decision making process is skewed by political interests and bias. Procurement procedures lack discipline, transparency and good governance. Against this background, the ‘Grand Inga’ provides a fine example of the challenges facing Africa’s development ambitions.

Public-Private-Partnerships (PPPs): Light at the end of the Tunnel?

As with many megaprojects, concerns have already been raised about the projected costs, delivery timescales, as well as misaligned benefits and outcomes. The development model for the project does not appear to take into considerations the expectations of the local citizens, given the burdensome tax liability for future generations. In all circumstances, it provides a false socio-economic ideal in one of the world’s poorest countries. But, this is not an isolated case across Africa. In the past, well-meaning, but poorly planned megaprojects have had a detrimental impact on many economies. Given such a patchy history it would be imperative to assess viable proposals prior to commissioning. But, it’s not all doom and gloom, as evidenced by some recent successes. An analysis of PPPs offers seemingly more transparent and pragmatic ways forward, with cooperative principles and robust contractual agreement that incorporate the private sector’s commercial expertise and resources.

The PPP concept defines and underlines a need for collaborative stakeholder engagement, driven by good governance to ensure successful execution. PPPs require a change of approach and mind-set to deliver services and infrastructure; plus, sound government institutions, legal frameworks and policies to implement.  It is no mean feat to design supportive frameworks that facilitate the execution of PPP projects, as the procurement and contract management issues of the project cycle can be onerous. For a start, to engage the right private sector partner starts with a well-prepared, commercially sustainable project. There is need to justify the ‘business case’ as suitable for PPP co-investment and structure the agreements, which will ensure an appropriate risk allocation among all key stakeholders.

Innovative policies and cluster-based strategies

Well-designed transaction processes are equally important, to justify the best deals for government, and to attract potential private sector partners who are able to achieve the desired cost-efficiencies and public realm improvements.  Given the complexity of PPP transactions, innovation may be the key that unlocks great ideas to deliver investment returns with both commercial and social value. As an example, ‘cluster-based’ strategies have paved the way for policy-makers and practitioners to embrace a more effective approach to socio-economic development. Innovation reduces uncertainty and risk, thereby increasing operational efficiencies and governance of megaprojects. Evidence suggests that megaprojects that emerge in strong economic clusters tend to perform better and deliver more beneficial outcomes to their host regions such as employment, economic growth and new industry spillage. The cluster framework ensures that policy makers are aware of various actor-dynamics that create positive and negative impacts on performance.

Megaprojects may offer suitable solutions to Africa’s economic challenges. However, the design, planning and management have to be configured appropriately to mitigate any associated risks. To succeed, stakeholders must investigate the underlying issues of poor performance and explore the possibility of developing alternative and more effective early-stage interventions to improve overall performance. Until then, the critics will rightly label the ‘Grand Inga’ like many others before her, not a great idea, but simply another glorious, white elephant.

by David Martin Kayondo

Author, Strategist and Consultant

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Risk and Uncertainty surround Africa’s Megaprojects

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