Public-Private Partnerships (PPPs) In The Real Estate Industry In Kenya

By Cytonn Investments / Published May 17, 2021 | 8:19 am




KEY POINTS

PPP contracts are usually long-term and legally binding with the private sector taking up the financial burden and risks involved in the development and operation of the project.


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A Public-Private Partnership is an agreement between the public sector and the private sector for the purpose of designing, planning, financing, constructing, and/or operating projects that would traditionally be regarded as falling within the remit of the public sector.

PPP contracts are usually long-term and legally binding with the private sector taking up the financial burden and risks involved in the development and operation of the project.

In Kenya, PPPs were established under the PPP policy statement, 2011 and later revised in Act. 15 of 2013 of the Kenya Constitution titled as the Public-Private Partnership Act.

The Act was passed to enable the participation of the private sector in financing, construction, development, operation, and maintenance of infrastructure projects of the government through concessions or other contractual arrangements.

The Act also establishes institutions that will regulate, monitor, and supervise the implementation of project agreements.

Recently the government introduced the Public-Private Partnership Bill 2021 intended to present a solution to current institutional and governance hurdles that have plagued the successful implementation of PPPs in Kenya over the last 8 years, however, the Bill is yet to be enacted.

The government of Kenya through the Kenya PPP Platform has reported a total of 64 PPP projects currently in the pipeline which includes projects in the affordable housing and student housing sectors.

Their consideration to use PPPs to deliver development projects has proven to be beneficial as they capitalize on the private sector’s capacities and the public sector’s ability to incentivize private sector investments.

Some of the major benefits of the use of PPPs experienced by the government include:

i) Access to finance for projects

ii) risk transfer to the private sector

iii) government access to private-sector efficiencies

iv) large scale investment and/or development

v) enhancement in ease of doing business.

Despite these benefits, PPPs have fallen short in the achievement of development initiatives attributed to:

i) inadequate planning for PPP projects

ii) insufficient regulatory framework to handle complex PPP transactions

iii) irregular procurement processes due to corruption

iv) insufficient bulk infrastructure required to support development

v) differing goals between the private and public sector

vi) bureaucracy and lengthy approval process

vii) inadequate risk mitigation strategies

viii) high transaction costs.

With the United Kingdom (UK) having come up with the first systematic program aimed at encouraging the implementation of projects through PPPs, their model has been used as a benchmark by other countries such as Japan, Sweden, Australia, and Canada in enhancing their PPP models attributed to UK’s;

i) effective procurement processes

ii) incentives to the private sector

iii) diverse market of project finance

iv) separate PPP policy and PPP project development agencies

v) flexibility in undertaking PPP projects.

The Kenyan government can emulate the UK model and improve on the delivery of its PPP projects by;

i) improving its regulatory framework by filling gaps

ii) establishing a more open and competitive procurement policy

iii) providing more attractive incentives to the private sector

iv) incorporating provisions for enabling other forms of financial support to make projects commercially viable for private investors

v) addressing institutional framework challenges to enable each to adhere to its mandate, and, vi) enhance incentives for the Housing pillar of the Big Four Agenda.

Public-Private Partnerships (PPPs) in the real estate industry in Kenya have not been promising owing to the numerous challenges in the regulatory framework.

However, with the government’s effort to revitalizing the PPP Program, there is hope for sustainable development through them to fast track achievement of industrialization.

The real estate sector stands to benefit from developments through the PPPs Initiative, if the recommendations aforementioned are taken into consideration, for the government to facilitate timely and successful implementation and delivery of PPP projects thus improving the country’s economy through this model.

For more information, please see our topical on Public-Private Partnerships (PPPs) in the Real Estate Industry in Kenya.







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