Prime
How to attract private investors to fund irrigation projects
Author: Joshua Enyetu. PHOTO/FILE
What you need to know:
- ...put in place the fundamental preconditions for the overall success of agriculture.
Government has long identified Public – Private Partnerships (PPPs) as a mechanism for attracting private capital to bridge the gap in financing Uganda’s infrastructure, estimated at $ 400 million per annum.
However, while PPPs have registered considerable success in facilitating infrastructural development in the power and transport sectors, private investment in the irrigated agriculture sector has not been forthcoming. Despite government rolling out several micro and large irrigation projects, no major irrigation schemes have been built through PPPs. Private investors remain reluctant to fund irrigation infrastructure, particularly for projects involving smallholder farmers.
The hesitancy is largely because irrigation projects, besides delivering long-term unpredictable financial returns, also carry significant commercial risks. Unlike power projects for example, the success of irrigation projects links solely to the viability of agricultural activities using the water. Thus, irrigation infrastructure is rendered ineffectual where farmers have no access to or cannot afford complementary agricultural support as is the case for most smallholders in Uganda. Accordingly, private partners are hesitant to invest in irrigation infrastructure for our farmers, dissuaded by their high vulnerability to market and commodity risks.
In light of such disincentives, but considering the urgent need to improve and stabilize agricultural productivity, increase climate change resilience, and ensure food security, a lot needs to be done to attract private investment in irrigation infrastructure for smallholder farmers. In the power and transport sectors where PPPs have proved highly successful, experience shows that private investors readily committed their finances because they had a degree of certainty that they would recover their investments.
Accordingly, government needs to put in place the fundamental preconditions for the overall success of agriculture as an industry. It should facilitate farmers’ adaptive capacity and access to stable, reliable markets through an elaborate agricultural support system for extension service and reliable access to credit and farm input.
Government’s establishment of legal and regulatory reforms, including the PPP Policy Framework (in 2010), and the PPP Act (approved in 2015) has created a more enabling environment and opened doors for a more firm PPP market in Uganda. Nevertheless, as a country we still lack the appropriate institutions to implement these policies.
Government should establish these institutions, including an irrigation development authority to prepare, appraise and provide better oversight for PPPs in irrigated agriculture projects.
While international best practice can be borrowed, our PPP arrangements must be designed around country conditions and must address the risks of the various parties involved, besides adopting Participatory Irrigation Management. In addition to investing in irrigation infrastructure, private partners should also be encouraged to consider embedding their funding in a comprehensive support package, including access to extension and financial services, input supply, and above all access to stable markets.
Meanwhile, farmer capacity and agricultural productivity are key determinants of the private-sector’s ability to enforce financial obligations of project participants. PPP contracts between farmers and management companies require capable staff and farmers’ organizations able to supervise the companies. Accordingly, government should oblige smallholder farmers to form cooperatives and water user associations, and provide them with long term support, including vocational training along with assistance in designing contracts and acquiring management skills.
To address low agricultural productivity, government should expand irrigation to locations where water is readily available, soils are suitable, and farmers either already have the productive potential or can be supported to develop it. Also, given irrigation infrastructure usually overlaps land boundaries, PPP contracts should oblige beneficiary communities to enter legally binding consensus.
Generally, private capital will flow into irrigation projects if the overall success of irrigated agriculture as an industry is guaranteed. For, as experiences elsewhere show, the more certain private investors are of recovering their time and financial commitments, the higher their appetite to finance and manage irrigation infrastructure. In turn, this will lower the need for public-sector resources for irrigation development, boost production and grow our GDP.
Mr Enyetu Joshua is an Irrigation Engineer at Akvo International - Irrigation Hub. [email protected]
