PM Hamza’s ill-Conceived, PPP-Driven National Transformation Plan for Somalia: A Recipe for Failure

OP-Ed - In late May, the Office of the Prime Minister launched a National Transformation Plan (NTP) that promises to redefine Somalia’s national trajectory towards prosperity and resilience. The proposed NTP will focus on empowering the Private Sector through Public Private Partnerships (PPPs), achieving government excellence in performance, and developing the overall economy. It claims the NTP is a paradigm shift from traditional development models to a transformational plan that represents a more dynamic, inclusive, and sustainable approach. In debunking Prime Minister Hamza Abdi Barre’s, unrealistic, utopian plan, this analysis will specifically focus on the PPP component of the plan while outlining how its ill-advised pursuit cannot spur “transformational” change in Somalia.

The common wisdom is that PPPs never work in developing countries, leave alone in a post-conflict state like Somalia. In growing the economy, it is clear that the proposed "National Transformation Plan" is hinged on the PPP modality. Unbeknownst to the Prime Minister, PPPs in developing countries can run into bottlenecks due to their inability to unlock private sector lending, lack of accountability and transparency and mismanagement of projects. This means that when local private sector entities fail to deliver on set projects, foreign entities may takeover technically placing a country’s natural resources in foreign hands.

In a typical PPP, a private entity takes over, finances, and operates large-scale government projects, such as public transportation networks, parks, and hospitals etc. Often times, PPPs are established under a Build Operate and Transfer (BOT) contracts that are generally more prevalent in developing economies, helping cash-strapped governments to turn to the private sector to finance large, complicated infrastructure projects that they might otherwise be unable to manage and afford. It is mistakenly considered an ideal PPP implementation model for Africa.

Under the BOT – PPP model, a private sector contractor tasked with financing, building and operating public infrastructure (road, highway) or utility (power plant, dam etc), for a set time of say 20 to 30 years, is allowed to recoup costs through a profit-making venture before transferring ownership back to the public entity at the end of the concessionary period.

What is driving the shift to the planned PPP modality in Somalia? It is widely held that PPPs are being forced on Least Developed Countries (LDCs) by multi-lateral lenders. Therefore, it can safely be argued that part of the conditionalities for debt relief for Somalia must have included the adoption of PPP modality. 

Progressive economists assert that PPPs are avenues for partial privatization to complete privatization of public assets and services. A state that is bent on pursuing full-scale PPP as its national "transformation " strategy" is one that is abdicating its national responsibilities. In LDCs, PPP's can only work if used in select small- scale projects, especially in municipal context such as provision of water services, building of sewerage system or construction of desalination plants. Such projects rely heavily on subsidies and donor funds and there is no guarantee this can become available in Somalia.

Contrary to what the Somali PM believes, PPP projects should selectively be implemented on a smaller scale and on short-term basis with the intended goal of handing over a fully built facility or completed project to the relevant public entity at the completion stage. Therefore, it is foolhardy for his government to adopt a plan built entirely on PPPs as part of its national "transformation" strategy." It is delusional and utopian at best. While PPPs maybe good for select projects in a given country where Private sector input is required, the PM should know that they do not serve the purpose of national transformation.

Like in other countries, the PM’s proposed PPPs in Somalia will be expensive and risky to the public purse and taxpayers. This is because they come with additional costs and uncertainty leading to cost escalation and overruns and increased liability as the public entity will be forced to bail out private contractors in the event of loss or abandonment of projects. While misplaced proponents of the modality argue that it can deliver projects on time and on budget, it is nevertheless difficult to ascertain the overall cost and duration of any given PPP project. For example, the cost of a PPP project estimated at $2 billion can easily skyrocket to $10 billion at completion point leading to significant losses at the expense of the taxpayers.

A December 2022 report on PPP failures around the world written by experts from different regions that featured seven in-depth investigations into PPPs across a range of sectors, from healthcare and education to roads and water supplies, clearly demonstrated that larger-scale PPPs are not the solution to addressing development challenges.

Titled History RePPPeated II, the report found that all of the projects investigated “came at a high cost for the public and posed an excessive risk for the public sector. They resulted in a questionable diversion of public funds, in most cases. Some of the projects also caused serious environmental harm while others had serious impacts on women in particular. All of the PPPs investigated lacked transparency and/or failed to consult with affected communities.”

Frankly speaking, Somalia doesn’t have the regulatory, policy and monitoring systems that can provide effective public oversight over PPP projects. This is a clear warning to the PM’s Office that entertaining the idea of PPPs that are not backed by proven feasibility studies may be costly and could even derail the economic development agenda.

Another clear warning to the PM is that PPP projects have even failed in major industrialized countries with the London underground Metro system often referenced as a notable example. In 2002 and 2003, London Underground Limited, a subsidiary of Transport for London, signed “three 30-year agreements with the Tube Lines and Metronet consortia for the maintenance and renewal of lines”, but the projects quickly encountered problems as the private consortia, which were responsible for upgrading and maintaining the system,” failed to meet their targets.”

In 2007 and 2010, after years of delays and cost overruns, the Metronet, and Tube Lines “were terminated early, and the London Underground was taken back into public ownership, leaving the British taxpayers with losses estimated at billions of British pounds.” 

The PM should be advised that PPP projects in developing countries like Somalia come with significant risks. For a PPP driven investment to succeed, a country must have a sound legal, financial, and regulatory frameworks that can provide an environment that is conducive for private sector participation. In Somalia, the absence of strong regulations can lead to high risk for private investors. Unfortunately, the existing weak regulatory frameworks in Somalia, may not offer ample protection for long-term investors and local consumers.

The PM may not be aware that PPPs in Somalia may come with political risks. This is particularly true in incidences where lack of positive collaboration between the public entity and its private sector partners becomes apparent, potentially leading to termination of the concession by the government and resulting in corporate bailouts or lawsuits that can be costly to the public. Worse still, in the event of transfer in state power, a new incoming government pursuing a different developmental trajectory, may opt to terminate existing contracts leading to further losses.

Further, it has been established that PPPs following a BOT delivery come with disadvantages including “lack of consistency and poor governmental management; unclear government criteria for awarding projects; legal constraints in applying evaluation criteria; and problems of contract drafting.” In places like Ghana, PPPs, especially in the water sector, ended up in failure “due to lack of public consultation, flaws in the process of stakeholder engagement, the ambiguous role of the regulator and shortcomings in the design of policy.”

Is the PM cognizant of the fact that PPPs can significantly eat up public expenditure because ultimately, it is the taxpayers who would foot the bill? On the other hand, the state and its private sector partners may introduce punitive user fees for public services or increase taxes to recoup the cost. In the Somalia case, this will place enormous burden on the ordinary citizens the majority of whom are poor and impoverished.

In order to implement potentially successful PPPs, a country must have a robust tax regime where revenue collection is optimal. Currently, Somalia lacks an advanced tax collection system that can sustain the economy and finance public expenditure including social programs. In many countries that adopted limited PPPs, the process was preceded by pilot projects to assess and prove its viability. There is no evidence to show that the PM’s office has conducted relevant pilot projects in key economic sectors to warrant transition to a "transformational plan" that can rely on PPPs on a national scale.

To date, there is no evidence based empirical research showing PPPs work in LDCs. PPPs are mostly used in infrastructure/transportation and municipal projects. They do not span the entire economy meaning they cannot be used to drive a national "transformation" plan. While PPPs may be good for infrastructural development, they basically have minimal impact on the human development index.

The PM has no idea that PPPs can only work in a country with a fairly developed industrial base that can effectively drive this model of development. Thus, PPPs do not make sense in a chronically poor and underdeveloped country like Somalia. PPPs are only good in middle income countries with fairly developed economies. Basically, Somalia does not have the basic economic, financial, technical, and physical infrastructure to implement PPP driven "transformational" change at national level. In advancing infrastructure and public utility projects, development experts have concluded that a fully public or private company would be more efficient than a PPP.

No doubt, the burgeoning Somali private sector has played a critical role in revamping the economy while its for-profitservice delivery to the public has excelled in the telecom, mobile banking, fintech and education sectors. But the PM should have known that the Somali private sector thrives well while operating in its autonomous sphere, free from entanglement with the state. As such, any private sector dalliance with the state including a shift to PPP will only serve to promote rent-seeking, corruption, and other malpractices.

While the PM’s NTP purports to pursue a transformational agenda, it is worth noting that no transformation in any country can take place in the absence of industrialization. As envisioned by American economist and development theorist, Walt Rostow, the stages of economic growth and development include transition from “traditional society to preconditions to take-off, followed by take-off, and then the drive to maturity.”

Again, while it has passed the traditional society stage long ago, Somalia has not reached the pre-conditions to take-off where society begins to develop manufacturing, nor is it anywhere near the take-off stage where according to Rostow, industrialization begins to occur, and workers and institutions become concentrated around a new industry.

True, Somalia experienced a measure of industrialization during the era of the revolutionary military government, but all the gains of that period were wiped out by the protracted civil war that brought the Somali economy to its knees. So, Somalia today is stuck between post transition from traditional society and the precondition to take-off stage.

Europe and the entire West was transformed by the industrial revolution, not utopian "transformational “plans. At this stage, it is irrational and illogical for the Somali Prime Minister to front the idea of "transformational plan" in the absence of an industrial base or a coherent, long-term industrial policy.

For a poor country like Somalia, the PM should be informed that the developmental state (state-led development) remains the only development model that can help rebuild and industrialize the country. State-building should be the building blocs to achieving national development /transformation goals followed by a clear industrialization strategy.

In the post-war era, it was the developmental state in Asia that was credited with the rapid economic transformations in places like Japan, Korea, Hong Kong, Taiwan, and later other second-tier East Asian industrializing countries. Simply put, the somewhat market-oriented, PPPs the PM is touting, cannot bring about societal transformation in Somalia.

Rather than rely on an utopian PPP - inspired “transformational plan" devoid of initial state-led industrialization, Somalia, a country hamstrung by weak public institutions, should at the international level, call for a Marshall Plan that is fully funded by its development partners to meet its national development and reconstruction goals.

At the domestic level, the PM’s office should shelve the NTP and revert to a remodeled National Development plan focused on devising an industrial blueprint that should go hand in hand with the state-building process while adopting development strategies corresponding to the realities on the ground. Only then, can the government lay down a solid foundation for a transformational agenda driven by industrialization, innovation, and ingenuity.

Deeq Haji Darwish - Chairman, Somali Intellectual Group (SIG)

Chair.sig@gmail.com

Disclaimer:
The views expressed in this article are those of the author, Deeq Haji Darwish, and do not reflect the official stance of Garowe Online. Garowe Online is not responsible for the accuracy or completeness of the content. Readers are encouraged to form their own opinions.