African countries are considering numerous infrastructure funding options including FDI in return for their natural resources; however, most of the critical transport corridors on the continent cross numerous borders, which starts to create a complicated funding arrangement. Consider a cross-border route that must contend with varying forms of transport taxation and levies and different country incomes that affect infrastructure affordability. Each trading nation will also experience varying economic growth potentials and direct benefits resulting from usage of the cross-border infrastructure.
The problem is further compounded by the possibility of infrastructure becoming politicised as these investments compete with other state funding requirements and become subject to in-country national economic and political debates.
The best way to deal with risk and to fairly distribute the financial burden is to create regulatory space for private sector participation.
This provides an opportunity for financiers to make informed investment decisions while raising debt outside of the fiscus. More importantly, this allows the major users of the infrastructure to directly contribute to the effective implementation and ongoing maintenance of Africa’s new transport corridors. These complex PPPs require transaction advisors that have a strong track record of understanding and operating on the African continent. The success of the overall PIDA programme in Africa will therefore become dependent on the effective adoption and implementation of a robust African PPP road programme.
This article originally appeared on Transport World Africa, May 2014.