In 2020, the taps will open at the Kigali Bulk Water Project in Rwanda’s capital. Forty megaliters of clean water will stream out of the facility per day – enough to supply up to 500,000 domestic, commercial and industrial customers. The impact on Rwanda’s biggest city will be massive.
Africa’s PPP promoters hope that the flow of clean water from this project will also catalyze a new flow in infrastructure investment. That’s because it represents one of the first water projects in sub-Saharan Africa to be developed using a Private Public Partnership (PPP) model. And it stands among just a handful of PPP projects now successfully completed in the Eastern part of the continent. Investors are watching the project carefully.
Creating the framework for success
Getting PPPs completed in Africa requires some patience. “Even with all of the work we have done over the past decade, it still takes far too long for projects to get to financial close,” laments Judith Nyakawa from her office in Nairobi.
As Acting Director of the PPP Unit under Kenya’s Ministry of Finance, she leads the country’s efforts to improve the way various government departments implement PPP projects in Kenya.
The country implemented their PPP Act in 2013 and is in the process of passing a number of amendments aimed at reducing the red tape in public sector approvals. Most other markets across Africa, however, are still trying to operationalise their frameworks.
The water about to flow from the taps in Kigali, for example, would not have been possible without Rwanda first developing the right legislative framework for PPPs in the water sector.
“Our technical assistance team spent years working with the Government of Rwanda and the local authorities to create a framework that would allow a water concession to be tendered. It was a lengthy, but ultimately very successful, process,” noted Philippe Valahu, CEO of the Private Infrastructure Development Group (PIDG), the infrastructure development and finance organization that led the transaction.
Over the past few years there have been strong signals that the PPP environment in Africa – and particularly in East Africa – is maturing. For one, many of East Africa’s governments are starting to take a more realistic view of their pipelines.
“Governments used to come to us with a list of US$1billion projects that everyone knew were too big to get traction. Today, governments are talking about executing on more realistic – albeit smaller – projects that demonstrate capacity and build investor confidence,” notes Emilio Cattaneo, Executive Director of the Emerging Africa Infrastructure Fund (EAIF), a PIDG company that arranged the debt financing for the Kigali water project supported by funding from PIDG’s Technical Assistance Facility.
Crowding-in local currency investment
While significant effort is being put into attracting foreign investors and global infrastructure funds, the most exciting development in East Africa has been the growing involvement of local investors who – by investing in local currencies – are helping to reduce the overall foreign exchange mismatch that often plagues user-pay projects in the emerging markets.
“Historically, projects would be funded in dollars but user-fees would be collected in local currencies. That meant that either governments or users were left holding the exchange risk. But if part of the funding were to be secured in local currencies – either through banks or through the capital markets – you can start to de-risk a project to a point where it fits within an investor’s criteria,” noted Janice Kotut-Sang, Regional Director East and Southern Africa for PIDG company, GuarantCo.
Looking for new opportunities
While South Africa is often cited as the most mature market on the continent in the development and execution of PPPs across multiple sectors, there are a handful of markets that are not far behind.
In Kigali, the government is eagerly waiting for the water to start flowing from the new Bulk Water Project. The hope in Rwanda is that it will not only help to quench the city’s thirst for clean water, but also the continent’s thirst for infrastructure investment. Green shoots need water.
The writer is the Head of Infrastructure at KPMG Advisory Services Limited and can be reached at firstname.lastname@example.org. The views and opinions are those of the author and do not necessarily represent the views and opinions of KPMG Advisory Services Limited.