Why does public–private partnership matter in Africa’s post-Covid recovery?

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The outbreak and unprecedented spread of COVID-19 reduced net foreign direct investment (FDI) inflows to Africa by 16 percent in 2020 to $40 billion, from $47 billion in 2019, a significant decline. This stems from the negative impact of the virus on the FDI source-countries’ economies.

Moreover, the diversion of state funds from delivery of public goods and services to curbing the pandemic has created a new deficit in African governments’ revenue between 2019 and 2021. A report by the International Monetary Fund forecasts that at the macro level, sub-Saharan Africa’s economic development is likely to recover only gradually, at a rate of 3.7 percent in 2021 and 3.8 percent in 2022. Also at the micro level, domestic private enterprises were equally affected by measures to curb COVID-19. Particularly lockdowns interrupted the flow of business, making most African economies vulnerable to slow recovery and low revenue over many years. Moving forward, a new alternative for financing public goods and services delivery needs to be identified.

In December 2021, the European Commission announced the Global Gateway, a new ‘road map for investment’ for the developing world, promising to mobilise €300 billion ($340 billion) in public and private infrastructure investment. If it materialises, this will be an eventual alternative to China’s ‘Belt and Road’ global infrastructure strategy in African countries. While both initiatives present alternatives for financing, African leaders need to strategise for economic recovery by finding appropriate PPPs that would attract foreign finance.

Why public–private partnership matters

Public–private partnership (PPP) is a mechanism to attract and provide alternative financing for African governments and raise their effectiveness and institutional quality. But PPP has not yet been perceived as such a formula for attracting FDI for post-Covid economic recovery in Africa. While primarily introducing an alternative capital, management, or technology in operating public projects, it would also provide profits to private actors. In addition, PPP arrangements would expand and improve the investment environment for FDI.

Evidence suggests that FDI – a practice where a foreign person or other entity (such as a firm or mutual fund) commits capital, management skill or technology investments – has faced several challenges in the past. In particular, research on mergers and acquisitions (M&A), a type of FDI found across Africa, establishes that unpredictable regulatory environments, higher levels of corruption, unreliable power supplies and poor transportation infrastructure have continuously made non-African firms reluctant to be engaged in FDI in the form of M&As. The 2021 World Investment Report has recently estimated that ‘brick-and-mortar’ FDI, one form of FDI aimed at setting up new industries that is considered key to industrialisation prospects in the region, has dropped by 62 percent, to $29 billion.

The slow COVID-19 vaccine rollout to date only increases the challenge of restoring financial and economic activity, including strategies to finance the delivery of public goods and services. The pressing need to redefine the PPP–FDI relationship in African countries will require reforms.

What needs to change

First among such reforms is the need to change perceptions of PPP and FDI. This starts with demystifying government actors as the sovereign and sole responsible actors in public goods delivery (such as electricity, water, transportation or housing). Viewing private firms as potential actors to partner with on the continent would furthermore improve the local investment environment. It will also attract FDI as a new source to boosting the sectors struggling to continue economic transformation in the aftermath of COVID-19. A positive perception and FDI appropriation within the PPP framework at the state level will improve the delivery of public goods, thereby reducing production costs, improving the quality of goods, creating employment opportunities and promoting skill-intensive jobs. This in turns increases the tax base and promotes technology transfer among African countries.

Second, an introduction of competition law would promote and maintain market competition and help regulate anti-competitive conduct among companies, as the basis of state laws relevant to FDI. This will improve transparency and fairness and reduce monopoly tendencies of foreign entities in the domestic market. As a result, the private domestic investment environment will get a boost, increasing the rate of acquisitions and mergers from foreign direct investors in Africa. More binding commitments by African governments will emerge, with a positive perception of monitoring and evaluation procedures in ascertaining the profit for FDI investments attracted.

Last, improving compliance mechanisms would reduce the under-performance or breach of PPP contract terms and conditions between the public-sector and private foreign direct investors in brick-and-mortar. Introduction of better technology, finance and management compliance will improve the quality and delivery in projects that will be prioritised for each country’s economic transformation. Compliance would furthermore be guided by deriving a new regulatory framework from existing laws that govern domestic private partnerships, an approach that would also accommodate the engagement of FDI among African countries.


Umar Kabanda is a Policy Leader Fellow in the School of Transnational Governance. He is the founding director of Kalube consults Ltd. in Uganda and a member of an African Scientific and Research Innovation Council (ASRIC) advisory working group on the impact of COVID-19.