An examination of risk perceptions and allocation preferences in public-private partnerships in Nigeria

Risk perceptions and allocation preferences are important elements of Public-Private Partnerships (PPP); as the fundamental tension in any negotiation between the public and private sector in PPPs usually comes down to the question: who is responsible for managing a particular risk? Yet research literature suggests that these phenomena have not been adequately studied; hence they remained poorly understood. Particularly within the context of a developing country such as Nigeria: a complex country characterised by shifting socio-political and economic systems, yet bedevilled with huge infrastructure gap. This gap keeps widening especially with Nigeria’s burgeoning population, rapid urbanization, dysfunctional institutions and increasing fiscal pressures. This certainly makes the poignant case for a PPP as an alternative procurement method. To shed light on these phenomena, the research expedition in this thesis empirically answers the following interrelated questions: How do private and public sector partner prefer risks to be shared (or allocated) in PPPs in Nigeria? Second, given that the initial disposition towards risk is the starting point for risk allocation in PPPs, are there significant differences in risk perceptions of different stakeholder groups involved in PPPs in Nigeria? Research participants (spanning banking, construction, and public sector groups who were selected through a convenience sampling method) completed an online survey with Likert-type items within six months (i.e. between June and November 2011) to gauge probabilities of occurrence, risk impact and risk significance of 46 risk factors pertaining to PPP projects. As data did not meet the assumptions for parametric statistics, Mann-Whitney U tests were performed to evaluate the ranked differences in the variables (i.e. 46 risk factors) between private and public sector groups. This study dissects empirically the risk perceptions of stakeholders, confirming homogeneity in risk perceptions contrary to the heterogeneity prediction of agency theory. It was established that there were no significant ranked differences for perceptions of risk significance among various stakeholder groups. Therefore, with homogeneity in risk perceptions among PPP stakeholders (contrary to the theoretical heterogeneity prediction) it was argued that risks are likely to be allocated to the party best capable of managing them in Nigeria; thus PPPs could have a chance to succeed in the country in spite of its weak institutional conditions. The results further show that the three most important risk factors in Nigeria are: excessive contract variation, construction time delay and construction cost overrun. Lastly, on risk allocation preferences, this study shows that 27 (59%) out of the 46 risk factors are preferred to be allocated to the private sector, while 8 (17%) risk factors are to be allocated to the public sector and 11 (24%) of the risk factors are to be equally shared between the private and public sectors.