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The Availability of Indigenous Finance

2023-04-25

The Availability of Indigenous Finance

In the past, African Governments have played the role of being the primary provider of public infrastructure and services. In recent years, several African Governments including Kenya, Nigeria and others seem to have made a conscious decision to adopt new and innovative approaches to the provision and financing of public infrastructure and services. This has led to several African countries adopting a public private partnership (PPP) framework to fund infrastructure projects that would otherwise be a strain on the public purse. In Kenya, for example, the PPP policy has undergone a metamorphosis of sorts into the more robust legal platform that exists today. 

Many countries are now formally adopting a framework for PPPs in their local laws. 

A PPP is an arrangement between a contracting authority and a private party under which a private party:

  1. undertakes to perform a public function or provide a service on behalf of the contracting authority;
  2. receives a benefit for performing a public function by way of:
  1. compensation from a public fund;
  2. charges or fees collected by the private party from users or consumers of a service provided to them; or
  3. a combination of such compensation and such charges or fees; and
  4. is generally liable for risks arising from the performance of the function in accordance with the terms of the project agreement.

Such arrangements usually require a huge capital outlay on the onset and as such the participation of the private sector in the financing, construction, development, operation, or maintenance of infrastructure or development projects of the Government through concession or other contractual arrangements is key. 

Africa is seeing an increase in participation by the locals in the funding of such projects. Case in point includes the road annuity programme whose first project recently reached financial close having been funded by one of the biggest local banks in Kenya. 

The challenge is the past has been that the indigenous people have felt that foreigners often get preferential treatment when it comes to investing in projects in Africa including tax breaks. African Governments may consider either levelling the playing field to encourage local investment or also offer incentives to locals or indigenous people to encourage the local investment climate. 

Juliet Mazera