Public–Private Partnership for Sub-Saharan Africa PDF
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Advances in African Economic, Social and Political Development Hanna Kociemska Public-Private Partnership for Sub-Saharan Africa Advances in African Economic, Social and Political Development Series editors DierySeck,CREPOL—CenterforResearchonPoliticalEconomy,Dakar,Senegal Juliet U. Elu, Morehouse College, Atlanta, GA, USA Yaw Nyarko, New York University, New York, NY, USA Africa is emerging as a rapidly growing region, still facing major challenges, but with a potential for significant progress—a transformation that necessitates vigorous efforts in research and policy thinking. This book series focuses on three intricatelyrelatedkeyaspectsofmodern-dayAfrica:economic,socialandpolitical development. Making use of recent theoretical and empirical advances, the series aims to provide fresh answers to Africa’s development challenges. All the socio-political dimensions of today’s Africa are incorporated as they unfold and newpolicyoptionsarepresented.Theseriesaimstoprovideabroadandinteractive forum of science at work for policymaking and to bring together African and international researchers and experts. The series welcomes monographs and contributed volumes for an academic and professional audience, as well as tightly edited conference proceedings. Relevant topics include, but are not limited to, economicpolicyandtrade,regionalintegration,labormarketpolicies,demographic development, social issues, political economy and political systems, and environ- mental and energy issues. More information about this series at http://www.springer.com/series/11885 Hanna Kociemska Public-Private Partnership for Sub-Saharan Africa 123 Hanna Kociemska Wroclaw University of Economics Wrocław,Poland ISSN 2198-7262 ISSN 2198-7270 (electronic) Advances in AfricanEconomic, Social andPoliticalDevelopment ISBN978-3-030-14752-5 ISBN978-3-030-14753-2 (eBook) https://doi.org/10.1007/978-3-030-14753-2 LibraryofCongressControlNumber:2019933201 ©SpringerNatureSwitzerlandAG2019 Thisworkissubjecttocopyright.AllrightsarereservedbythePublisher,whetherthewholeorpart of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission orinformationstorageandretrieval,electronicadaptation,computersoftware,orbysimilarordissimilar methodologynowknownorhereafterdeveloped. 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ThisSpringerimprintispublishedbytheregisteredcompanySpringerNatureSwitzerlandAG Theregisteredcompanyaddressis:Gewerbestrasse11,6330Cham,Switzerland Contents 1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 2 Development of Public-Private Partnerships (PPPs) in Diversified Economic Areas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 2.1 Genesis and Concepts: Project Finance and Public-Private Partnerships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 2.2 General Legal, Economic and Organisational Conditions of Public-Private Partnerships in the European Union. . . . . . . . . . 22 2.3 Development of Public-Private Partnerships in Conventional and Islamic Economies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 2.4 Sub-Saharan Africa as a Region of Interest to Foreign Investors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 3 Public-Private Partnership in the Light of Risk and Public Finance Theories. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 3.1 Risk and Its Management in Economic and Financial Theory . . . . 47 3.2 Public Finance Functions and Risk . . . . . . . . . . . . . . . . . . . . . . . 56 3.3 Internal and External Risk Determinants in Public-Private Partnerships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69 3.4 Risks and Functions of Islamic Public Finances . . . . . . . . . . . . . . 85 References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101 4 Heterodox Approach to Public-Private Partnership (PPP) . . . . . . . . 105 4.1 Main Schools of Thought in Public Finance and Rules of Islamic Moral Economy (IME) . . . . . . . . . . . . . . . . . . . . . . . . 105 4.2 Agency Theory Versus Islamic Finance. . . . . . . . . . . . . . . . . . . . 112 4.3 Public Choice Theory and Social Choice Theory Versus Islamic Finance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114 v vi Contents 4.4 Islamic Moral Economy (IME) Versus Social Responsibility in Conventional Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120 4.5 Heterodox Approach to the Pillars of Public-Private Partnership. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123 References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 132 5 DeterminantsoftheAttractivenessofaPublic-PrivatePartnership in a Heterodox Perspective . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 135 5.1 DeterminantsoftheAttractivenessofPublic-PrivatePartnerships from the Point of View of a Conventional Investor . . . . . . . . . . . 135 5.2 DeterminantsoftheAttractivenessofPublic-PrivatePartnerships from an Islamic Investor’s Point of View. . . . . . . . . . . . . . . . . . . 141 5.3 DeterminantsoftheAttractivenessofPublic-PrivatePartnerships for the Public Partner . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 143 5.4 Heterodox Approach to Public-Private Partnership and the Resilience of Infrastructure Investment to Global Financial Crises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 148 References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 153 6 Example of Investments in the Formula of Public-Private Partnership Using the Heterodox Perspective . . . . . . . . . . . . . . . . . . 155 6.1 Assumptions Concerning an Exemplary Public-Private Partnership Project . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 162 6.2 Risk Management in Public-Private Partnerships on the Basis of the Proposed Heterodox Approach. . . . . . . . . . . . 167 6.3 Advantages and Disadvantages of the Investment in the Proposed Formula According to the Heterodox Approach. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 171 References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 174 7 Conclusion: Heterodox Approach to Public-Private Partnership . . . 175 Bibliography .. .... .... .... ..... .... .... .... .... .... ..... .... 179 Chapter 1 Introduction Thecoreofthetheoryisthestudyofhowbesttoallocateand deployresourcesacrosstimeinanuncertainenvironmentandof theroleofeconomicorganizationsinfacilitatingthese allocations.Timeanduncertaintyarethecentralelementsthat influencefinancialeconomicbehaviour.Itisthecomplexityof theirinteractionthatprovidesintellectualchallengeand excitementtothestudyoffinance.Toanalyzetheeffectsofthis interactionproperlyoftenrequiressophisticatedanalytical tools…,ofcourse,notallthatisbeautifulinscienceneedalso bepractical.Andsurely,notallthatispracticalinscienceis beautiful.Herewehaveboth[1]. R.C.Merton RobertC.Mertonpresentedasoundcharacteristicofthedevelopmentoffinancial theoryand,aboveall,thefinancialmarkettheory.Theinterestingandinnovativeinter- actionsreferredtointhequotethatprecededthisintroductionshapeoureconomic reality.Uncertaintyandriskaccompanymostbusinessrelationships.Thevariability andcomplexityofthesephenomenaovertime,aswellastheneedtoreacttothem fasterandfaster,butalsoindifferentways,makeitnecessarytolookfornewmethods offinancialmanagement.Convergenceoftheprinciplesandphilosophyofmanage- ment of conventional and Islamic investors understood as convergence in selected areas are not always possible. The theoretical heterodox approach to such cooper- ationintheformulaofpublic-privatepartnership(PPP)doesnothavetobeuseful everywhere, although, according to R. C. Merton, can be scientifically beautiful. Hence,theauthormadeanattempttodescribethecooperationofpublicandprivate sector actors from different legal and religious orders, between which the selected canonsoftheeconomy,oftenperceivedasseparate,tendtopermeate.Ineconomics, heterodoxy is pertaining to an evolutionary approach to the economy. It analyses phenomenainmanyaspects,includingsocial,historicalandreligiousones.Itisnot apartofthemainstreameconomics,asitoftenstandsinoppositiontoit.Heterodox economists attempt to explain phenomena and data that mainstream science often ©SpringerNatureSwitzerlandAG2019 1 H.Kociemska,Public-PrivatePartnershipforSub-SaharanAfrica, AdvancesinAfricanEconomic,SocialandPoliticalDevelopment, https://doi.org/10.1007/978-3-030-14753-2_1 2 1 Introduction takesforgranted.1 Thus,theheterodoxapproachproposedinthemonographinthe contextoftheimplementationofPPPprojectsintheconditionsofconventionaland Islamicfinanceinemergingordeveloping countrieswillbeamanifestationofthe searchoftheoreticalsolutionsinthesub-disciplineofpublicfinancesandevolution offinances.Forthepurposesoftheseanalyses,threeordershavebeendistinguished, systematisingthetypesofcountriesandeconomicsystems,theinteractionsofwhich willbethesubjectofresearch.Theseare: (cid:129) asystemofconventionalfinancialrules,hereinafterreferredtoastheconventional financesystem(Westernfinance),coveringtheareaofEurope,AmericaandEast Asia; (cid:129) theIslamicfinancialsystem,whichincludestheGulfcountries,Malaysiaandother regionsofAsia; (cid:129) asystemthatisnotclearlydefinedfromthepointofviewofthedominantfinancial system,coveringtheareaofdysfunctional,emerginganddevelopingcountries,in particular,thecountriesofsub-SaharanAfrica. Thenatureoftheproposedterminologyispurelyconventional,asitonlyallows to outline features of particular types of partners, appearing in correlations in the PPPstructuresdescribed.Aprivateorpublicinvestoroperatingintheconventional financialsystemisonewhousesgenerallyacceptedfinancialprinciples,inparticular: costandoutturnaccount,profitmaximisation,interestonborrowedcapital,operating intheWesternfinancialsystem.AnIslamicinvestorisapublicorprivateinvestorwho baseshisdecisionsontheIslamicMoralEconomy,theQuranandtheprinciplesof Shari’ahlaw.Eachofthesetypesofinvestorshasitsownspecificcharacteristicsand faces different economic challenges. The difficulties for the conventional partners areincreasing,andtheexistingfinancialinstrumentsandpublicfinancemanagement rulesarenolongersufficient.TherepeatingfinancialcrisesintheUSAandEurope provedtobekeymomentsindisruptingthestabledevelopmentofmanyconventional economies.Althoughtheveryconceptofcrisisisoftentreatedinajournalisticway,in economicrealityitisstillestimatedthatmanyeconomicindicatorsareindecline.2In connectionwithunfavourabledemographicchangesandgrowingneedsofsocieties, deterioratingeconomicindicatorsmaycontributetothecrisisofpublicfinancesand to disturbance of the relationship between incurred expenditures and accumulated public revenues, as a consequence may lead to an uncontrolled increase of public debt. Atthesametime,underconditionsofuncertaintyintheeconomicsystemsofcon- ventional countries, Islamic countries have a specific position. They have become moreresilienttotheeffectsoffinancialcrisesthroughtheirapplicationoftheprin- ciplesoftheIslamicMoralEconomy.Additionally,theyhavenotsufferedinterms of their ability to finance public infrastructure and provide their citizens with a 1Rogowska[2]. 2http://www.kozminski.edu.pl/pl/aktualnosci/aktualnosc/eksperci-kozminskiego-ostrzegaja- polsce-grozi-kryzys-spoleczno-gospodarczy-w-2016-i-2017-roku-moze-nastapic-zachwianie- rownowagi-spoleczno-ekonomicznej-w-polsce-twierdza-badacze-z-alk-tworcy-indeksu- zrownowazonego-rozwoju-spoleczno-ekonomicznego/,accessedon05.07.2016. 1 Introduction 3 certainqualityandquantityofpublicgoodsintheirimplementationsofpublicpoli- cies,whicharelargelybasedonongoingcooperationwithprivateactors.Neverthe- less,theyfacesignificantdemographicproblems,shortagesofcrucialrawmaterials, whichareneededfordevelopment,suchaswater,andtheneedforintensiveeduca- tionortheacquisitionofknowledgeandtechnologyfromoutside.Thecountriesof the Gulf Cooperation Council (GULF) also need opportunities to further diversify their sources of income and to look for them beyond the market for their natural resources.Theexpansionofthesecountriescanbehamperedbythelackofaccep- tanceandfullunderstandingofIslamicfinanceprinciplesinconventionalcountries andinnewmarketsnotdefinedintermsofsystems. Insub-SaharanAfrica,itwasnotuntilthe1980sand1990sthatindividualstates began to regain independence and shape their territories, economies and societies. Powerinnewlyformedstatesoftenfellintothehandsofdictatorsandhighlycor- ruptadministrations,withoutanyexperienceandknowledgeregardingmanaginga country,whichoftenledtofratricidalwarsandthelossofvaluableassets—suchas rawmineraldeposits—to“newcolonisers”.3 Attheendofthe1990s,thetransfor- mationprocessbeganslowly,withgrowingopennesstoinvestors,whiletheneedfor politicalandeconomicchangeswasnoticedinmostofthecountriesoftheregion, especially Nigeria, Botswana, Angola and South Africa. The lack of stable pillars ofpublicpolicyiscurrentlypromptingtheauthoritiesofthesecountriestoconsider modelsofmanagingpublicfundsadequatefortheirstates.Theseeconomicsystems still form a “plastic mass” that can be shaped in a way that is fair, benefiting both thesocietyandinvestorsandstableinthecontextoflong-termdevelopmentthrough knowledgeandexperience.Therefore,Iproposetheimplementationofsolutionsin the PPP formula, using selected principles of conventional and Islamic finance in sub-SaharanAfrica. The functioning of these conventional financial systems is affected by the pro- gressive globalisation, which for the purposes of this paper is broadly understood asamanifestationofboththeinternationalisationofindividualeconomiesandthe increasingly free movement of knowledge, experience and human capital between countries.Atthesametime,theglobalisationprocesshasrevealeddeepdisparities in the development of individual regions of the world. These can be seen particu- larlyinsub-SaharanAfrica,includingsomeemergingcountriessuchasNigeriaand Botswana.Thesecountriesneedsupportandinterventionsothattheirdevelopment becomespossibleandbeneficial.Forinvestorsfromdevelopedcountries,bothcon- ventionalandIslamic,itisanopportunitytoexpandinanewsocialandeconomic environment.Thisrequiresknowledgeoflocalcircumstances,particularlyinview oftheprogressofIslamisationinsub-SaharaninAfrica,andtheincreasinguseof theIslamicfinancialrules. ThankstothebroaderuseofPPPs,whichinvolvetheinterpenetrationofselected principlesofconventionalandIslamicfinance,itmayprovepossibletoensurestable development of the region of sub-Saharan Africa. Moreover, the involvement of foreigninvestorswillbefairer,adequatetolocalneedsandsupportingtheprocess 3Tiffen[3].
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