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Tuesday, July 23, 2024

Asset recycling; another development slogan or real deal for low income small states?

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By Almamy Fanding Taal

The reasons why finance ministers in low-income small states are talking about asset recycling now are not difficult to decipher: our planet is engulfed by multiple crises at the heart of which is the existential climate crisis. Some optimists believe that engineering solutions can mitigate and help the poor to adapt to the loss and damage caused by climate change by building green resilient infrastructure.

Thus, the growing interest among some development economists that the existing national assets of a nation may be recycled by upgrading and repurposing the assets already built to build the infrastructure needed to cope with severe weather events and disasters and ensure successful transitions to a less carbon intensive development pathway.

Asset recycling allows governments to bring private sector innovation, investment, and efficiency to an asset without handing over the ownership of the asset to the private sector. Not privatisation but a reiteration of PPPs. It is essentially a partnership between the public and private sectors to manage, maintain and operate an asset for a specific period.

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Therefore, asset recycling allows governments to release the value of their existing assets by bringing forward future revenues. When the proceeds are invested back into new, more efficient, and more sustainable infrastructure, a virtuous circle is created. The government retains control over the construction, design, and outputs – while still leveraging private sector methodologies and innovation in order to upgrade and operate those assets efficiently over an agreed timeframe.

We know that sustainable economic growth is essential, but our Government needs to invest directly in health, education, and employment to enhance the power of growth to increase opportunities. This is why our Government must make every effort to ensure that the process of increasing livelihood opportunities happens at a much faster rate; and that the programmes and projects will have an immediate and palpable impact on our people’s lives.

However, the key is to move towards a strategic approach to asset recycling. Therefore, instead of taking assets to market opportunistically, experience shows that governments often get more value – financially and environmentally – when they take a strategic and programmatic approach to bringing assets to market.

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The major premise of any asset-recycling scheme is that the assets to be recycled have real value in the open market and are a growing concern operationally. In reality, this is about making sure that the government is bringing forward assets that meet the capability and interest of investors without contributing to oversupply. The minor premise here is that a robust PPP legal and regulatory framework is in place, competition and other elements of a free-market economy are in full flow.

It is about creating a level playing field for effective private sector participation and enhancing capacity that can be used to create a successful asset-recycling programme. Process and documentation must be standardised across a number of different asset transactions, which makes it easier for the government to oversee and be more transparent for potential investors.

For most governments, moving towards a strategic approach to asset recycling can be tricky. For example, to get different sectors working together (often under the responsibilities of different ministries or agencies) and agreeing on the terms. Some sectors may already have tried and tested approaches to private sector participation. In many markets, State Owned Enterprises (SOEs) are involved. Some decision-makers still need convincing on the merits of asset recycling.

For all these reasons a government agency can easily be drawn into doing one-off deals as opportunities arise.(Nawec CARPOWER Arrangement was conceived as an interim arrangement now it appears to be permanent making Gambians pay one of the highest energy bills in the world) Because sometimes creating a strategic approach takes too much time or effort. Nevertheless, it is worth it; a strategic approach can result in huge advantages.

Some of the barriers that governments face when considering an asset-recycling programme include but not limited to the fact that policy makers and leaders lack of awareness and understanding of the benefits and mechanics of an asset-recycling programme. As such it may be preferable to start with a series of ad-hoc deals in order to help people understand how the concept works and to gain comfort with it.

Furthermore, there is evidence that governments also struggle with carving out individual assets for asset recycling. In many departments and SOEs, losses from one asset can often be subsumed within the wider balance sheet. (This is the situation with the Gambia Ports Authority and its subsidiary Gambia Ferry Services Ltd for several years GFS IS a loss making unit) Moreover, governments do not tend to manage their asset data in the same way that private investors do.

It is fair to say that real time data availability is a major challenge in The Gambia and compounded by the fact that the Gambian economy is largely informal. This informality affects every aspect of life including the assets profile of the nation. To illustrate the point McCarthy Square the only green open space in Banjul has always had a transparent fence. Its proximity to State House, the Office and residence of the President and to the Quadrangle the seat of Gambia Government makes the Square our national public square. Independence Day in 1965 was celebrated there and first two decades thereafter were celebrated there.

Since the July 22 1994 coup, the Square was renamed after this infamous date (July 22nd Square, which name it still carries) and not only that but permanent buildings were erected and official cars parked inside the only green space in our capital city?  All these were possible because there is no legal framework for the protection of assets of that nature. All done at whims of dictator Jammeh on that spree the State House was turned into a garrison with monstrously high walls. Thus identifying and protecting our nation assets should be first step The Gambia Government should take in this respect.

Then the Government needs to ensure that the right rules are in place to provide confidence to investors and transparency to the market. Investors want to see a programme that is well defined, where the process and terms of the transactions are equal and transparent, and where there is clarity into the long-term pipeline. Lastly, ensuring that the contractual obligations are enforceable.

Asset recycling presents a huge opportunity for The Gambia Government, particularly given the current confluence of economic, political, financial, governance, social and environmental challenges. In addition, infrastructure investors are looking for new investment opportunities that not only deliver financial value but also provide social and environmental upsides.

Therefore, asset recycling can play a transformation role in The Gambia Government’s economic agenda. To that end, The Government should a comprehensive audit of the stock assets by identifying and determining their net values. Thereafter make decisions on the best assets for recycling and those asset with zero salvageable value responsibly disposed of.

In this regard, the Government should consider neglected abandoned and distressed assets that still have great residual value and that continues to provide social and environmental services to marginalised and or remote communities.  Such efforts are all the more relevant because of the Environment Social Governance benefits it can also help deliver.

The solutions to our country’s needs are not short-term remedies that deliver quick but temporary results. We are looking for long-term changes in the very structure of our institutions, economy, and society, so that whatever gains we obtain from asset recycling, economic  reforms and other development initiatives that our nation achieves now will forge an enduring mainstream of opportunities, and continue to produce benefits for current and future generations of Gambians.

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