Fresh off a pair of global development summits in Africa, the U.S. government has announced new financing commitments to support public-private partnerships geared mainly toward boosting growth on the continent.
The government-backed Millennium Challenge Corp. said it is pledging $70 million in grants to support PPPs worldwide, of which $52 million will go toward projects in Africa.
The aid is a part of a new funding platform to finance the preparatory studies and due diligence that go into eventual PPP arrangements.
The bilateral aid agency projects that the $70 million package will generate around $1 billion of private sector investments over the next five years. The $52 million earmarked specifically for PPPs in Africa, in turn, is expected to generate roughly $750 million of private investment.
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The announcement came with Africa at the top of the agenda for the issue of development finance. It was announced during U.S. President Barack Obama’s recent trip to the continent where he attended a summit on global entrepreneurship in Kenya.
The Kenya summit itself came on the heels of the third International Conference on Financing for Development in neighboring Ethiopia, where business and government leaders mapped out new financing strategies for the post-2015 development agenda.
“Development needs in Africa and around the world will not be met by foreign assistance alone,” MCC said. “At the conference on Financing for Development earlier this month, there was widespread recognition that official development assistance must increasingly catalyze other resources to finance development.”
The grants will go to support PPPs in six African countries — Benin, Liberia, Lesotho, Malawi, Morocco and Tanzania — who are all eligible to receive large MCC funds based on various economic stability and governance criteria. A seventh African recipient, Sierra Leone, is eligible for smaller funding.
Outside of Africa, El Salvador and Indonesia are also part of the $70 million package.
The amount pledged is in fact small for MCC standards. The aid agency has invested $11 billion over the past 11 years in partner countries. And its large grants are typically between $350 million and $400 million.
But the $70 million commitment is unique because it is the first time that MCC has earmarked PPP funds specifically for what it describes as project preparation. That entails the technical feasibility work, financial structuring and legal support to conceptualize and market a PPP rather than the construction or operation of a public asset.
MCC calculated that the average preparation cost for an international PPP is generally 5-7 percent of a project’s total expenses. It therefore arrived at the $70 million figure using the high end for the roughly $1 billion worth of projects in the pipeline that it is formulating with partner countries.
Future PPPs in the seven African countries will most likely focus on energy and electricity projects, to align with the Obama administration’s Power Africa initiative.
“There are lots of opportunities for power purchasing agreements with private operators to contribute to electricity access,” Kyeh Kim, an MCC official who oversees infrastructure and private sector grants, told Devex.
Apart from energy, projects will likely be designed around water infrastructure and vocational education programs based on existing aid agreements with partner countries.
As many projects are still in their conceptualization phase, potential private sector partner companies have not yet been determined. MCC said partners will be selected from an open and competitive procurement process where companies can bid on opportunities of interest.
Transparent and competitive bidding is often considered an obvious, though not universal, strategy to shed light on a government’s handling of PPP arrangements with private business. Civil society groups are often critical of opaque PPP negotiations as leading to unfavorable terms for the government that are ultimately borne by its citizens.