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South Africa – Nigeria
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Road Transport Infrastructure and PPP Collaboration Initiative
2 December 2019
Nazir Alli [email protected]
THE WORLD IN AFRICA
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India
China
UK Japan
Cuba
Ukraine
United States (Contiguous 48)
Portugal
Italy
Netherlands Belgium
Spain France
Ireland
Germany
Slovakia
Austria
Switzerland Serbia Estonia
Sicily
Iraq
Poland Hungary
Denmark Greece
Serbia Latvia
Moldova Bulgaria
Slovenia
Africa World
Economics
Social
Resources
Politics/ Institutiona
l
Technology
Country
Transport
WORLD INTERDEPENDENCE
2000
2016
2013
2019
PERCEPTIONS OF AFRICA
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AFRICA’S LEGACY
Colonial development - trade routes external flows - internal routes security - restricted access
Underdevelopment
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• Politics
- budgetary pressures
- social spending vs infrastructure
- take bold steps to close infrastructure gaps
- connect landlocked countries to seaports
• Public administration
- institutional reform
- alternative sources of funding: Public Private Partnerships
• Technology
- use of technologies for providing effective and efficient infrastructure
- corporate governance
DRIVING FORCES
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POOR INFRASTRUCTURE QUALITY INFRASTRUCTURE
• Reduces Africa’s GDP by 2% per annum • Reduces productivity by 40% • High transport costs adds 75% to price of African goods • Poor transport links explain intra- regional trade at 12% (Europe 60%) • Reduces utilization rates • Greater congestion and loss of time • Encourages poor land usage: I informal settlements (proximity to work opportunities) • Higher fuel costs
• Drives growth • Enables trade and skills transfer • Enables on demand services and goods • Reduces carbon footprint • Increase attractive investments • Connects people with ideas and technology • Reduces societal inequalities • Transformative force on continent
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IMPORTANCE OF INFRASTRUCTURE
• Responsiveness to Customer Needs
• Adjusting to Global Trade Patterns
• Coping with rapid motorisation
• Increasing access and affordability
• Standard of living
• Quality of living
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THE COMPOSITION OF INFRASTRUCTURE CHANGES WITH
COUNTRY INCOME LEVEL
Algiers - Lagos 2
Cairo – Dakar 1
Cairo – Gaborone – Cape town 4
Tripoli – Windhoek – Cape town 3
Ndjamena - Djibouti 6
Dakar – Ndjamena 5
Lagos – Mombasa 8
Dakar – Lagos 7
Beira – Lobito 9
1
1
3
3
2
4
4
5
6
7
8
9
Ouagadougou
Tamanrasset
Bamako Namey
Nouadhibou
Nouakhoff
Dakar Banjul
Bissau
Conakry
Freetown
Monrovia
Abidjan Accra
Lomé Cotonou
Lagos
Libreville
Kano
Agadez
Ndjamena
Bangu
Yaoundé
Kisangani
Brazzaville Kinshasa
Luanda
Lobito
Windhoek
Cape town
Gaborone
Beira
Harani
Lusaka
Lubumbashi
Dodoma
Mombasa
Nairobi
Kampala
Addis Ababa
Khartoum
Djibouti
Cairo Tripoli
Tunis Aleria
Rabat • How effectively we manage our
road infrastructure is key to the quality of the environment we live in
• Roads are taken for granted without acknowledging their vital contribution to security, safety, economic growth and social development
• Approximately 47% of the network has been paved, though maintenance remains a problem. There are numerous missing links in the network where tracks are impassable after rain or hazardous due to rocks, sand, and sandstorms
• As a result of missing links, road travel is only relatively easy between East and Southern Africa, which still relies on a single paved road through southwestern Tanzania
TRANS AFRICAN HIGHWAYS
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• Total length = 2 732 190 km - significant percentage not paved - hampers speedy transportation - access to road network uneven: rural areas mainly underserved - flow of goods to and from rural areas to markets difficult and expensive - maintenance is inadequate and/or inefficient • Roads are main mode of transport - 80% freight moved on roads - 90% of passengers - less than 50% of Africa’s rural population has access to all season roads - safety a major issue - fewer (than any other region) vehicles on its roads, underdevelopment of road network has resulted in severe traffic congestion
AFRICA’S ROADS
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5.2 5 5 4.7 4.7 4.4 4.2 4.1 4.1 [VALUE].1
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29 31
42 44
55
61
[VALUE].2
66 71
0
10
20
30
40
50
60
70
80
NAMIBIA SOUTH AFRICA
RWANDA COTE D'VOIRE
MAURITIUS MOROCCO KENYA BOTSWANA CAPE VERDE SENEGAL
Road quality index 2016 - 2017
SCORE OUT OF 7 WORLD RANKING
TOP 10 AFRICAN COUNTRIES WITH QUALITY ROAD’S
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39
49 50 55
65
75 77
105 111
96
45
70
52 47
54
84
99 99
110 112
0
20
40
60
80
100
120
Maritius Morrocco Rwanda South Africa Botswana Namibia Kenya Cote D'Ivore Cape Verde Senegal
Ease of Doing Business Competitive Index
SELECTED AFRICAN COUNTRIES EASE OF DOING BUSINESS RANKINGS AND COMPETITIVE INDEX
Roads are an enabler There are other factors to consider e.g. border crossings
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NO PAVED ROADS African countries still can’t raise enough capital to replace their bad roads
Source QuartzAfrica 2017
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PROJECTED INFRASTRUCTURE SPENDING FROM 2016 TO 2030, BY REGION OR COUNTRY (IN TRILLION U.S. DOLLARS)
14.24
10.8
5.89
3.44 3.44 2.95 2.95 2.46 1.96 0.98
0
2
4
6
8
10
12
14
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USD
“between 60 000 and 100 000 kms of roads are required to provide intracontinental connectivity” (World Bank, 2016 )
From a total of $2 trillion raised globally for Infrastructure projects, only R59 billion came to Africa
Spen
ding
in U
S Tr
illio
n do
llars
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WHY CHANGE
• Adapt to manage problems of 21st century • Need for high performance - in life – and – death situations - preventing crisis from reaching that point • “How come economists didn’t notice that the credit crunch was about to happen”? QE II Noc. 2008 • Credit crunch - opportunity
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RADICAL BREAKTHROUGH URGENTLY REQUIRED
• Roads are taken for granted without acknowledging their vital contribution to security, safety, economic growth and social development.
• How effectively we manage our road infrastructure is key to the quality of the environment we live in.
• Can and/or should roads be managed as a business? • Yes on both accounts!
• Parameters are “simple”. But application a challenge.
• Conflicting pressures on role of road networks in society.
• Inextricable link - political - economic - social systems
THE ROAD AHEAD
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ECONOMIC INTEGRATION
• What does it mean for Africa? • Macro-economic targets and goals - Increase level of economic activity - Generate employment opportunities - Governance - Reduce poverty - Improve delivery and coverage of services - Protect Environment - Promote sustainable use of resources
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EFFECTIVE PUBLIC SECTOR
• Strong Central Capacity for Formulating and Coordinating Policy
• Efficient and Effective Delivery Systems
• Policy vs Operation (Agency)
• Public Investment
• Social Safety Net
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• Equitable Development - Access - Competition - Sustainable growth
• Opportunity for full life • Mobolize Potential - rural poor > accessibility > stake in economy - Cities > engineers for growth > systems of cities - Regions > agglomeration economies > growth poles - Informal Sector > adequate level of service > entrepreneurship and income generating effects
OUR CHALLENGE
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INSTITUTIONAL TRANSFORMATION
State not merely Referee – Dominant Player in economic Game
State provide Development Outcomes by:
• Provide Macro- and Microeconomic Environment
• Institutional Infrastructure
• Provide Basic Services and
• Physical Infrastructure for economic activity
• Public Investment
• Right size government - decentralize authority - devolve responsibilities to lower levels of government - re-examine role of government - focus on ‘core business’: policy & regulation • State owned enterprises - do we need them? - how can state run them better? - degree of autonomy? - mandate? - sources of funding? • Role of SOE’s - developing and developed countries
INSTITUTIONAL REFORM
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• Role of Government • Role of private sector • Attitude towards taxation - government - citizens • Income transfer • Movement of people vs freight • Use of revenue - exclusive for what collected - general fiscus (Govt. “pot”) - diversion to other modes • Affordability • Social equity • Social target - promotion of SMMEs - provision of access to basic services - millennium development goals - meeting community expectations (social inclusion) - building human capital
SOCIETAL CONCERNS
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GOVERNMENT’S EVOLVING ROLE: TURNING THE VISION INTO ACTION
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Determine National Objectives
Reality 1998
Establish The Vision
Set the Playing Field
Define the Rule of the Game
Enable Firm Level Choices
Target National and Customer Outcomes
Reality 2020
Government as actor ●Deliver the system logic ●Cooperative Governance ●Reset rules ●Create transparency ●Enable choices ●Enforcement
Government as facilitator: ●Promote innovation and upgrading ●Ensure targets met
Unwind the Legacy Build the Platform Differentiate
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► Before March 1998
• Funding and Policy Making Functions – SARB • Chief Directorate Roads – Management • Full compliment of road providing functions, including lab, survey, land acquisition & CTO
► Required reform
• Separate regulator from operator • Decentralise accountability and control • Increased disclosure, analysis and dissemination on performance • Application of Sanctions
BACKGROUND
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INSTITUTIONAL REFORM (CONT.)
► Common goal - facilitate economic growth and social development - customer focus - least cost ► Drivers - justification for funding - efficiency gains - increasing demands - meeting government’s objective - measurable performance criteria - serving the community
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INSTITUTIONAL REFORM (CONT.)
► Developing countries: triple role - extend infrastructure & economic services to poor - invest in roads & provide basic services that do not attract private interests But underpin long term growth - may hold costs of basic inputs and consumer goods because it can “live” with lower or no profits. ► Flexibility to - source alternative funding - constructively engage private sector - manage as a utility
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APPROACH
► Road network regarded as utilities ► Investment in assets; not traditional public idea of
mere expenditures of funds ► Decentralise control ► D isclosure A ccountability D issemination S anction ►Extensive attention to governance.
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1998
Legally independent - commercial agency with sole share
holder – Minister of Transport
Eight member board (all non-executive) - only one from
government (National Treasury) + independent chairman
CEO – executive
Chairman appointed by shareholder
Committee chairs appointed by Board
Board allowed to appoint independent members to
committees
NATIONAL ROADS AGENCY (SANRAL)
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SANRAL Structure CS – Corporate Service FS – Financial Services ES – Engineering Services
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FUNDING DEMANDS
ELEMENTARY ARITMETHIC
• To spend or not - based on developing trends (predicted behavior) ten years from now
SOCIAL ARITHMETIC
• Demographic modeling
• Urbanisation
• Income distribution trends
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• Mobility is fundamental to and an important characteristic of economic
activity as it satisfies the basic need of moving from one location to the other, a need shared by passengers and freight.
• It impacts directly on the development and the welfare of the population.
• Poor infrastructure is an obstacle to economic growth.
• Where are the funds obtained from?
All funding options should be explored. • Apart from the direct cost of congestion (hours lost, productivity and vehicle operating costs), the social impact on congestion on society is a major concern:
- Commuters spend hours to get to and from work, many leaving in the early hours of the morning and returning late at night. - The social impact cannot be calculated in monetary value only, but manifests in the social health of society - In addition, poorly maintained roads and congestion impacts on road safety – knock on effect on society
- In South Africa, there is a very robust and emotive debate about road funding options
THE BIGGER TRANSPORT PICTURE
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• When considering the funding models for economic infrastructure, it is mainly based on the user pay principle:
- Water – based on consumption - Electricity – based on consumption - Sewage – included in utility charges - Communication – based on usage
• However, roads don’t have a direct user based funding mechanism similar to other utility services (water & electricity) • Although there are limited opportunities available to charge for the use of roads in terms of conventional toll schemes, the bulk of road infrastructure is funded from the central fiscus through the budgeting process.
WHY ARE ROADS UNDERFUNDED?
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CURRENT ROAD FUNDING SELLING APPROACH
• As roads authorities/engineers, we motivate for our share from the budget process in terms of sophisticated pavement management systems, economic models, road capacity analysis: - All very scientific and measurable - Job creation remains an important motivation
• Economic value of time (although often debated) is measurable, and forecastable, and used to motivate the feasibility/need for projects
• Still – roads in general are underfunded, meaning we are not being successful
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ALTERNATIVE ROAD FUNDING SELLING APPROACH
• Should we not rather start focusing on the social value of time which is “priceless”
• In doing that,
- We need socio-scientific studies to be conducted to determine the primary and secondary social impact on society from poorly maintained and insufficient road infrastructure - We need to have the ability to sell this concept to politicians, decision makers and the public that it is a social need and not necessarily or only an economic “nice to have”. • What will the long-term economic benefits from meeting short term social family time needs?
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PUBLIC PRIVATE PARTNERSHIP
Government
National interest
Policy levers - incentives
Co-ordinate planning and development strategies
Spatial integration - regional focus
Private Sector
Profit motive
Technology
Human resources - project management
Access to capital
Making markets - user charges
Public sector reform Public Private partnership Restructuring of state assets
Government agencies Operational and maintaining concession
Build – operate and transfer
Strategic equity partnerships
Full privatisation
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PUBLIC PRIVATE PARTNERSHIP
Government
National interest
Policy levers - incentives
Co-ordinate planning and development strategies
Spatial integration - regional focus
Private Sector
Profit motive
Technology
Human resources - project management
Access to capital
Making markets - user charges
Public sector reform Public Private partnership Restructuring of state assets
Government agencies Operational and maintaining concession
Build – operate and transfer
Strategic equity partnerships
Full privatisation
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ENGINEER
IMPLEMENTING AUTHORITY
CONCESSORS
GOVT RSA GOVT MOZ
PROTOCOL
SARB DNEP DOT
CONCESSION AGREEMENT FOR USE OF
LAND AND TO DESIGN/BUILD/OPERATE/
MAINTAIN/FINANCE HIGHWAY
SHAREHOLDERS AGREEMENT TO ESTABLISH
CONCESSION COMPANY
LENDERS
CONCESSIONAIRE
CONTRACT FOR DESIGN & BUILD CONTRACT FOR
OPERATIONS & MAINTENANCE
CONTRACTOR OPERATOR
CONTRACT STRUCTURE
DETAILS OF THE PROJECT
• Location: Gauteng border west of Witbank in RSA to Maputo in Mozambique
• Length: 504 km (Moz = 93km, RSA = 411km)
• Investment value:
– R1,5bn Initial Construction
– R3bn over Concession Period
• Rating: Za A minus
• Start Date 06 February 1998
• Concessionaire: Trans African Concessions (TRAC)
• Toll Plazas
– RSA 3 (Middelburg, Machado, Nkomazi)
– Mozambique 2 (Moamba, Maputo)
• Get basics right - contextualized policies - capable workforce - must be apolitical - pursue smart strategies to direct external partners in the development of its infrastructure - address inequality • Build institutions - be an informed client • Fair regulations - incentivize entreneurship • Innovative development financing instruments • Transparent decision making and procurement “Bad governance cannot be undone by technology”
CONCLUSION
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