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Phinias Tafa Infrastructure Report
As a country we have reached a point where no one has an ounce of doubt about the extent of our financial problems. Acres of space have been written on this topic, countless conferences have covered this subject. Although I have never been in Cabinet or Parliament, I believe that this subject is

certainly the foundation of the daily agenda of these Government arms.

Whilst a lot has been said about the country’s financial problem, with others saying Zimbabwe possess characteristics of both a “middle income country” and “a fragile state”; and no matter how bad the situation is, the country must continue moving forward. There are countries in this region and beyond with better economic fundamentals but they stand in awe before our redone Plumtree-Mutare highway. They marvel at our Harare International Airport and our recently built defence college.

Yes, some voices may kick and scream on how it was done but the fact of the matter is these pieces of public infrastructure are Zimbabwean and will serve the people of this country and others for many years to come. Hence we need more such public developments even though we are struggling to pay our obligations as a nation.

Our leaders must be reminded that although no one may thank them for investing millions of dollars into public infrastructure, citizens and businesses expect public infrastructure to be there anyway.

As acknowledged by the Minister of Finance and Economic Development, our Honourable Patrick Chinamasa in his presentation of the 2015 Macro-economic Framework, the tight fiscal space under the 2015 Budget made little room for funding of public infrastructure.

He provided that the almost $100 million required for infrastructure projects will be funded as shown in the table. (See the LBV model table below).

With 58 percent of the 2015 infrastructure bill coming from Joint Venture and Loan financing, we need to understand this sector a bit more. It calls for creative and intelligent ideas to new funding techniques and structures, which will enable serious infrastructure schemes of crucial social and economic importance get off the ground.

Local Asset Backed Vehicles (LABVs) Model

A viable option to fund public infrastructure is the use of LABVs. These are arrangements were a public asset, mostly council or state land is used to lever medium to long-term infrastructure investments from the private sector.

In this case Government, national or local, offers up public land to a private firm, which in turn offers the skill sets and finance required to develop the relevant asset.

LABV may also be viewed as a joint venture equity partnership that brings together the public and private sector actors in order to pool funds, land, planning powers and project skills and expertise.

The private actor as the investing partner will contribute skills, experience and funds to develop the projects. The two parties will then share proceeds from the development.

LABVs can be originated on the basis of a business case, budget and project structure and procedure manual. The partners will develop a business plan and select projects that meet agreed objectives. Selected projects will then go through formal project approval and viability assessment processes before adoption.

Guided by the objectives of the project, outputs of the investment may be sold for a capital windfall or retained to enjoy a stream of revenues for both the public and private sector partners.

For example, real estate units may be sold or let out for rental income. Since the two parties are equal partners and contributing equal value to the joint venture, the returns from the investment are shared equally.

The operations of LABVs are guided by the number and nature of public sector organisations participating and the objectives set out and agreed between them and their private sector investing partner.

When to use LABVs

From a public sector view, LABVs should be used where they will enhance the profile of the project, facilitate estate rationalisation, generate capital or revenue receipt, increase service delivery efficiencies, save on procurement rigidities, costs and time and deliver broad socio-economic benefits.

Proponents of this development model put forward the view that it allows public entities to utilise their asset base efficiently and sweat them in order to generate a stream of revenue and capital returns through a strategic mid to long term partnership.

LABVs have seen the successful completion of public projects like residential estates, public buildings like schools, hospitals and stadiums, and office, industrial and commercial parks in the developed world. The City of Harare — CABS Budiriro housing development is a good example of LABVs although I am not privy to the shareholding of the project

Recently the country was awash with news of land barons. Analysts argue that councils and government are not benefiting much from council and state land respectively. LABVs are a model that increases the chances of councils and central government to access the value of public land, especially in times of fiscal challenges like current Zimbabwe.

Advantages

LABVs have been praised for their ability to function as agents for economic stimulus and growth. They create employment and increase people’s disposable incomes.

Another advantage of LABVs lies in their ability to cut out the lengthy procurement process inherent in government run projects. Besides saving the government payment of costs upfront, LABVs strengthen public entities’ business know how. Local authorities in the developed world can bear testimony to this.

This model is also credited for delivery of both infrastructure or capital assets and financial streams to the government or local authority.

Private entities love LABVs because they ensure a significant level of the project’s risk remains with government. Based on the assessment of the projected financial returns of the completed development, investments can be disposed or kept in order to generate a capital or revenue receipt for both of the partners.

LABV Enabling Environment

The chances of LABVs to succeed depends on political support and will power, governance structures and accountability, public entity capacity, broad stakeholder engagement and participation and private sector interest.

Private sector interest depends on the other aspects. Strong political support and will power naturally increase appetite of private players to partner government in development projects.

In conclusion, Government entities signing LABVs, like local authorities, are advised to carefully consider their corporate or organisational objectives. They should establish their goals, core drivers and scope of plans. These may be either long term or reactionary.

Secondly they are advised to assess their appetite for risk and the extent to which such risk can be transferred to the private sector partner. To that end they should assess how genuine is the partnership, amount and magnitude of venture risks, each partner’s activities and activities to be subcontracted.

This publication is meant for general guidance and represents the writer’s understanding of the subject. Where specific advice for specific cases is required, it should be sought from the writer.

• Phinias Tafa is an infrastructure development consultant, and his focus lies more in public infrastructure. He is the Head Consultant of the African Centre For Real Estate and Land Economics (ACRELE). [email protected] or skype phin.tafa