Nation Building - Sharing risk and responsibility through ‘public private partnerships’

Sunday, September 08, 2013

A well-matched partnership for managing and investing in large scale developments utilizes the traits of efficiency and expertise characterized by the corporate sector and bridges it with the funding reserves, transparency and accountability requirements of the public sector. This matches the objective of public private partnerships (PPPs), a strategy used extensively in the Asia-Pacific region due to their use when undertaking large and expensive projects usually surrounding infrastructure.

The benefits of public private partnerships (PPPs) include the sharing of responsibility, resources, output requirements and financial risk which act as a buffer for both parties. Therefore PPPs are useful as strategies to justify government commitment and reduce reluctance to take on necessary but costly infrastructure upgrades and developments such as hospitals, transport and education works and telecommunication infrastructure.

It is also a strategy for economic development due to the long-term flow on effects that these large projects have on relevant support industries and the local suppliers who win long-term contractual commitments which supports local business and in effect stimulates the economy including the business of service providers who provide vital services – from architects and engineers to financial service providers. It will also provide opportunities for service companies wanting to export their expertise globally.

Nation building through PPPs still depends on existing infrastructure and must take into account bottlenecks in supply chain, financial, managerial and technical domains that can hamper decision making of many corporates from partnering developing economy governments. An economy with underdeveloped capital markets and with constraints on cross-border capital flows is unlikely to attract foreign investors, particularly into longer-term PPP contracts. Attracting private capital into PPPs is an essential challenge to use PPPs as a development vehicle. Economies that have well developed PPP frameworks have government initiated mechanisms such as broad procurement regulations and policy considerations in place such as the need for transparency and fairness which adds to their strength. Government influence in large projects also provides additional benefits such as requirements to undertake a public consultation approach due to the use of public funds increasing its usability.

Foster Infrastructure was commissioned by the APEC Business Advisory Council (ABAC) in 2012 to review PPP frameworks on design for social infrastructure and provide recommendations on a PPP best practice framework. It can be accessed here.

In order to boost PPPs in the Asia-Pacific region the Asian Development Bank created a Public-Private Partnership Operational Plan 2012–2020 due to the large need for infrastructure investment in Asia numbering $750 billion from 2010 to 2020. This plan provides information on PPPs and their key role in the region, it can be accessed here.