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Private Sector Participation in African Infrastructure: Is it Worth the Risk?

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  • Kate Bayliss

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    (Independent Consultant, Brighton, United Kingdom)

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    Abstract

    Policies to promote privatisation in developing-country infrastructure gained momentum in the early 1990s as donors grew increasingly frustrated with efforts to strengthen public sector services that continued to fail. The strategy was intended to bring both finance and efficiency to ailing infrastructure throughout the developing world. Nearly two decades later the results have been disappointing, particularly in the areas of greatest need. The extent of investor interest in water and electricity in Sub-Saharan Africa (SSA) was massively overestimated and the hoped-for private investment failed to materialise. Rates of access to electricity and water remain far below those of other developing regions. In response to the failings of privatisation there has been a redoubling of efforts to attract investors, albeit with the recognition that this might take longer than originally thought. Privatisation in various guises is still prominent on the policy agenda. This paper critically assesses the motives behind the drive for private sector participation (PSP) in water and electricity in SSA, and reviews measures adopted by governments and donors to entice investors. In terms of restructuring and pricing, sector policies have the underlying objective of facilitating private investment and reducing the risk exposure for potential investors. In addition, a plethora of donor initiatives have emerged with the aim of bringing private investment into the region, and these too focus on reducing risk for the private sector. As a result, on offer to the private sector are the least challenging and most lucrative aspects of delivery, which are tightly ring-fenced and bound by guarantees. In industrialised economies, discussions of the merits of PSP highlight the importance of transferring risk to the private sector in order to generate efficiency gains. In contrast, as regards attracting PSP into utilities in SSA, the focus is on reducing the risk to which the private sector is exposed. But this risk is not reduced, it is transferred. As a result, African governments, taxpayers and end-users bear high levels of risk in order to accommodate the priorities of investors. (...)

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    File URL: http://www.ipc-undp.org/pub/IPCWorkingPaper55.pdf
    File Function: First version, 2009
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    Bibliographic Info

    Paper provided by International Policy Centre for Inclusive Growth in its series Working Papers with number 55.

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    Length: 51
    Date of creation: May 2009
    Date of revision:
    Publication status: Published by UNDP - International Policy Centre for Inclusive Growth , May 2009, pages 1-51
    Handle: RePEc:ipc:wpaper:55

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    Keywords: Private Sector Participation in African Infrastructure: Is it Worth the Risk?;

    This paper has been announced in the following NEP Reports:

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    1. Elisabetta Iossa & David Martimort, 2008. "The Simple Micro-Economics of Public-Private Partnerships," The Centre for Market and Public Organisation 08/199, Department of Economics, University of Bristol, UK.
    2. Narjess Boubakri & Jean-Claude Cosset & Omrance Guedhami, 2001. "Liberalization, Corporate Governance, and the Performance of Newly Privatized Firms," William Davidson Institute Working Papers Series 419, William Davidson Institute at the University of Michigan.
    3. World Bank, 2004. "Water Resources Sector Strategy : Strategic Directions for World Bank Engagement," World Bank Publications, The World Bank, number 15013, October.
    4. Antonio Estache & Martin A. Rossi, 2009. "Regulatory Agencies: Impact on Firm Performance and Social Welfare," Working Papers ECARES 2009_010, ULB -- Universite Libre de Bruxelles.
    5. Sebastian Galiani & Paul Gertler & Ernesto Schargrodsky, 2002. "Water for Life: The Impact of the Privatization of Water Services on Child Mortality," Working Papers 54, Universidad de San Andres, Departamento de Economia, revised Sep 2005.
    6. Estache, Antonio & Kouassi, Eugene, 2002. "Sector organization, governance, and the inefficiency of African water utilities," Policy Research Working Paper Series 2890, The World Bank.
    7. Antonio Estache & Jean-François Perrault & Luc Savard, 2008. "Impact Of Infrastructure Spending In Sub-Saharan Africa: A Cge Modeling Approach," Cahiers de recherche 08-03, Departement d'Economique de la Faculte d'administration à l'Universite de Sherbrooke.
    8. Narjess Boubakri & Jean-Claude Cosset, 1998. "The Financial and Operating Performance of Newly Privatized Firms: Evidence from Developing Countries," Journal of Finance, American Finance Association, vol. 53(3), pages 1081-1110, 06.
    9. Shirley, Mary & Walsh, Patrick, 2000. "Public versus private ownership : the current state of the debate," Policy Research Working Paper Series 2420, The World Bank.
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