Rapidly growing cities in Africa and around the world are constrained by the funding and delivery of basic infrastructure, including water, transit, power, and communications. New technologies, new business models, public-private partnerships, and increasing interest from financial investors should be able to mitigate some of these constraints, help individuals to improve their lives, and provide attractive business and investing opportunities. In theory, well-matched finance, appropriate design, and capable execution in addressing these components of cities can help urban areas to be more competitive with other cities, more environmentally friendly, and better able to provide opportunity for residents.John Macomber, Senior Lecturer of Business Administration at Harvard Business School, researches ways that the private sector can finance and deliver public infrastructure. For the last three years, he has led an Immersive Field Course in the Harvard Business School MBA Elective Curriculum. Teams of HBS students have traveled to several developing countries to research prospects for private finance and delivery of solutions in traditional energy, renewable energy, urban transit, inter-city transit, water and sanitation, municipal solid waste, infotech and telecoms, commercial real estate, and more.
Students in this course, taught at the Harvard Business School for the first time in 2016, gain extensive understanding of two major East African cities (Addis Ababa, Ethiopia and Dar es Salaam, Tanzania); rich awareness of the basics of infrastructure design, finance, and delivery; and an advanced sense of what private investors and businesses need in terms of revenue opportunities, regulatory and contractual environments, and technical skill to succeed in these areas.
In conducting several hundred in-person interviews with business, government, academic, and investing leaders in countries including Ethiopia and Tanzania as well as field research in Ghana, Kenya, and Rwanda, Macomber has uneared lessons learned there that can be applied golbally to fund infrastructure development:
First, direct tariffs are not the only way to repay investments. Most water projects, for example, don’t generate enough water bill revenue to pay for themselves. But, rather than go without water for lack of current funds or skills, municipalities like Algiers, Algeria, have contracted for water with GE on an availability-plus-subsidy basis so the city builds on top of the water revenue alone. This public-private partnership helped the city finance and deliver water to millions of people when it did not have the cash or the capability to do it with city resources alone.
Second, the public can help the private investors with initial capital. The Diamniadio toll road in Dakar, Senegal, is a public-private partnership where the private sector supplied most of the capital and is compensated mostly by toll revenue, but the low “policy price” tolls would not have paid back the full cost. The government of Senegal contributed to first cost of the road—a much smaller amount than building the whole route with public funds—rather than pencil in a prohibitively high toll. This successful project reduces congestion in the capital, facilitates business investment in the region, and helps to move the center of gravity of the city to a newer, less congested district.
Third, procurement can be streamlined to avoid inadequate specification of the project’s scope and/or a bad selection process. For example, Senegal’s Infrastructure Council vets projects, the World Bank and other development finance institutions help to fund a proper set of competitive documents, and a panel oversees a transparent award.
Fourth, projects can be planned and sequenced to optimize cumulative benefit. While it’s tempting to spread infrastructure spending around for political reasons, that can lead to disconnected and unrelated projects that don’t provide sufficient bang for the buck. African municipalities can’t afford to waste money this way.