How PPPs Fill in Infrastructure and Service Gaps
February 18, 2020
By Linda Nemec and David Baxter
It is increasingly challenging for public sector entities to find the funds or advocate for the budget to invest in needed infrastructure. Less costly and more effective alternatives to traditional sources of financing exist. USAID, the World Bank, and the MCC have been working with countries to improve access to alternative financing options by focusing on the revenue side through domestic resource mobilization: a complementary approach would lower government expenditures for infrastructure investment and operations, i.e., helping governments prepare bankable projects. Investments in infrastructure should attract developers, investors, and banks if the government can be a trusted partner, allocates risk properly, and puts in place a legal environment that protects both parties. Public-private partnerships (PPPs) are a proven way to not only finance infrastructure, but also improve the quality of and lower the cost of providing services through increased efficiencies that the private sector typically brings to the table. Moreover, these projects are often delivered in a more timely manner as private sector partners are held to strict timelines and outcomes.
There are a number of reasons why governments do not take advantage of public-private partnerships to finance and manage infrastructure investments. Some do not have a PPP law to provide the legal basis to use private sector financing to build infrastructure or provide services. Some do not trust working with the private sector. Others do not have the capacity to evaluate the allocation of risk and related financial terms being proposed; others do not have internal units that can monitor the construction of infrastructure or provide oversight to the private sector partner managing the project or service. A good many, however, do not realize that a PPP option exists and how to choose relevant PPP models. In our experience, once government officials develop practical skills and a comfort level to use PPPs as a form of alternative financing, a whole new world of opportunities opens up and their citizens benefit.
By David Baxter and Linda Nemec, Partner4Growth