Public-Private Partnerships (PPPs) are often cited as the solution to Africa’s infrastructure financing deficit, which, according to the African Development Bank, remains stubbornly high at USD 130-170-billion annually. The usefulness of PPPs in addressing this deficit lies in their ability to mobilise private sector capital and business innovation while sharing the risks with the public sector. Despite their potential to drive infrastructure growth, however, many projects across East Africa have remained stuck in the pipeline and have struggled to reach financial close.

In Kenya, Tanzania and Zambia, legal frameworks governing PPP transactions have been developed and updated, but this has not led to a significant increase in bankable deals. With the immense potential on offer in the PPP space in East Africa, the challenges and risks preventing private capital from entering this space must be addressed.

Legal developments

Zambia implemented its first Public-Private Partnership Act in 2009, but few projects reached financial close. Economic uncertainty in the country, especially after Zambia’s default during the Covid pandemic, highlighted the need to incentivise private investment in infrastructure development. The 2009 Act was replaced by the Public-Private Partnership Act No. 18 of 2023, which introduced an independent PPP office, small and medium PPPs to encourage local participation, and an emphasis on capacity building to improve skills in PPP negotiation and project delivery.

Tanzania has two PPP frameworks – one that applies to the mainland and another for the island of Zanzibar. The mainland's PPP (Amendment) Act No. 4 of 2023 and the PPP (Amendment) Regulations, 2023 clarified provisions around government funding and guarantees for PPP projects in the mainland and greatly reduced project approval timelines. Zanzibar on the other hand, does not, in most cases, operate a strict traditional, tender-based PPP procurement system, and it is moving towards more investor-friendly partnerships that align with its national development goals. This necessitates the need to modernise Zanzibar’s Public-Private Partnership Act, 2015.

In Kenya, the Public Private Partnerships Act, No. 15 of 2013 established a foundational legal framework for PPPs but proved to be bureaucratic and procedurally cumbersome, which limited its effectiveness in attracting private sector participation. As a result, few projects progressed to financial close. The Act was replaced by the Public Private Partnerships Act, No. 14 of 2021, which introduced new procurement methods and established the Directorate of Public Private Partnerships within the National Treasury. The new Act also refined the privately initiated proposals (PIPs) process, allowing developers to submit concept papers before collaborating with the contracting authority to develop full feasibility studies.

Challenges and risks

Across all three countries, the common obstacles to successful PPPs include government capacity and funding constraints in the feasibility stage, complex approval processes leading to lengthy delays (of approximately eight to nine months in Zambia, for example), foreign exchange risks that affect revenue predictability, and regulatory uncertainties and policy changes that impact investor confidence.

In Zambia, the mandate that unsolicited proposals be subjected to a competitive bidding process has added a layer of uncertainty to PPPs. This is the same in Tanzania, where unsolicited proposals are also generally required to go through competitive bidding unless the proponent qualifies for an exemption.

In Kenya, if only one privately initiated proposal is submitted and approved, it can proceed without competition if the PPP Committee is convinced that the proposal is unlikely to attract market interest through a competitive procurement process, is anchored on unique terms, or direct negotiations are justified on other grounds in the public interest. If multiple PIPs are received, the project could then be competitively tendered. Competitive bidding is therefore considered to be the default. Kenya has seen both successes (the Nairobi Expressway) and failures (the Nairobi–Nakuru–Mau Summit Highway) under this model.

The lack of compensation for losing bids creates a disincentive for private sector investment. In Zambia, there is no provision for reimbursing the original bidder’s development costs, even if their proposal is not selected. Kenya allows reimbursement of development costs if the project is later subjected to competitive bidding and the original bidder loses. This reimbursement is conditional upon the project reaching financial close, the costs not exceeding 0.5% of the estimated project value and the amount being borne by the successful bidder.

In Tanzania, a key incentive for PPPs is that cost recovery is allowed if the original bidder loses the bid, provided they reach the feasibility stage. There are also defined criteria under which a private party can lobby for exemption from competitive bidding. However, too much red tape and long timelines have discouraged investors, with recent reforms aimed at streamlining approvals and reducing delays.

A further barrier to PPP growth in all three countries is the public’s perception of such deals. In Kenya, for example, PPPs are often perceived to be ‘secret deals’ by members of the public who do not trust the PPP process. Without transparency and broad public participation, even the most promising projects risk reputational damage, litigation and delays. Regional guidelines on disclosure, modelled on global best practices, could assist in increasing the legitimacy of PPP transactions.

Opportunities

Seizing the potential of PPPs requires that projects are derisked from the start, procurement cycles are shortened, and predictability in regulation and tax policy is assured.

PPP opportunities in Tanzania are mostly evident in the infrastructure space, cutting across multiple sectors, for example, energy transmission, transport, ports & logistics, etc. Major PPP projects include the Dar es Salaam bus rapid transit system (with all six phases earmarked to be operated by private partners under PPP), the Kibaha expressway, and the construction of multiple transport hubs and dry ports. Projects in the ICT and digital infrastructure sector are also booming, with new data protection laws driving demand for local data centres. The need to expand electricity transmission and distribution networks due to low electrification rates is also driving PPP investment in the country. On the other hand, municipal PPPs backed by local governments have also been highly successful in Tanzania.

Zambia is also focusing on transmission projects, with the aim of linking Zambia and Tanzania’s electricity markets by 2027. In addition, the Great North Road expansion project and border post improvements will be funded by PPPs, along with water and sanitation projects and healthcare projects.

In Kenya, transmission infrastructure projects are gaining traction. For example, Africa50 and Power Grid Corporation of India signed a Joint Development Agreement in 2022 to develop Kenya’s first independent power transmission project under the PPP framework. Successful transport infrastructure PPPs include the Nairobi Expressway, though some PPP road projects have stalled due to policy constraints. There are also efforts to enhance the Mombasa and Lamu ports through PPPs, and there is growing interest in social infrastructure development, including bulk water supply and sanitation projects.

Incentives

Each jurisdiction has implemented incentives to encourage investors to enter PPPs. For example, Zambia introduced a 15% corporate income tax rate for special purpose vehicles engaged in PPP projects, as well as VAT and customs relief on imported construction materials. Tanzania PPP legislation recognises government guarantees and indemnities for qualifying PPPs, in addition to tax incentives that were introduced in the 2023 PPP Act amendments. In Kenya, the Government Support Measures (GSM) policy clarified support eligibility in public investment programmes, and political risk coverage for PPPs is provided through letters of support and insurance mechanisms.

Progress

All the ingredients for a successful PPP framework are falling into place, including political will, maturing legal frameworks, and a growing project pipeline across numerous sectors. To ensure progress, governments must ensure they frame these projects as national development instruments and maintain a focus on transparency and meaningful public participation. With continued investment in technical capacity, clearer public participation guidelines and more flexible PPP structuring - including fairer treatment of unsolicited bids and mitigation of currency risks - the PPP pipeline will move from potential to progress.

Written by Edwin Baru (Kenya) and Joshua Mwamulima (Zambia), Partners, and Lameck Muganyizi (Tanzania), Senior Associate, Bowmans