Trends that will Drive PPPs in 2019

February 6, 2019

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I see the following trends shaping PPP projects based on discussions with other PPP thought leaders and my recent experience working on PPP initiatives in Albania, Switzerland, the United Arab Emirates, Turkey, Sri Lanka, the Kingdom of Saudi Arabia and the United States. 

1. New Sectors for PPPs. Although infrastructure PPPs—transportation, power (especially renewables) and water—will continue to be a focus of most governments, social service PPPs for healthcare, housing, and education will receive more attention, especially in emerging economies. Growing interest in these projects will be driven by countries who are attempting to achieve their Sustainable Development Goal (SDG) objectives as well as countries looking to improve the efficiency and effectiveness of these services.

2. Growing interest in sustainable, resilient, and regenerative PPPs. Sustainability and resilience are critical for PPPs to be considered bankable and  viable. Governments, investors, and insurers are becoming more concerned about risk caused by extreme weather driven by climate change and are demanding that projects mitigate these risks by incorporating resilience and sustainability measures. For example, elements of regeneration need to be built into project recovery strategies so that infrastructure PPPs can recover quickly from extreme weather events.

3. A Surplus of Maturing PPP Projects. Many countries are now facing the reality that PPP projects launched in the 1990s are maturing. Thirty years seemed far off back then and few governments focused on the time when project contracts would expire and would be handed back to government owners for day-to-day operations and maintenance.  Many governments do not have the resources to manage these maturing projects and are concerned about being inundated by a wave of projects that they really do not want to manage or are incapable of managing. This offers opportunities for PPP investors.

4. PPP Legal Revisions and Reforms that are Focusing on Better Governance. Many countries are undergoing PPP reforms or adopting PPP legal frameworks to establish or improve PPP enabling environments. This positive trend will result in opportunities for PPP proponents to offer better risk protection to investors and developers, especially in emerging markets. These reforms are encouraging as they will help mitigate legal constraints that have caused developers and investors to avoid PPPs in certain markets.

5. Growing Attention to Improve Institutional Capabilities to Deliver PPPs. With heightened scrutiny by governments and investors on PPP results, there is a growing focus on improving the institutional capabilities of governments to oversee projects, including building the capacity of public sector officials to procure and manage PPPs. In many countries, newly constituted PPP Units are being formed to provide technical support to PPP project proponents and managers. This trend will help PPPs reach their potential and reduce exploitation of PPP initiatives by malfeasant actors. 6. Demands for Competitive and Transparent Procurement and E-Procurement. One of the biggest concerns of potential developers of and investors in PPP projects in emerging markets is rigged procurements and corruption. Recognizing this concern and reality, governments are increasingly adopting measures to support transparent and competitive PPP procurements, including the use of e-procurement platforms – often sponsored by multilateral banks and development agencies.

7. Decreasing Appetite for Unsolicited PPPs. As governments become increasingly aware of private sector concerns about nepotism and corruption, there is a growing awareness of the dangers of unsolicited PPP proposals. Consequently, there are steps underway in many countries to better regulate unsolicited proposals so as to ensure that only bankable projects that are economically and commercially viable are considered. It is important that the private sector becomes aware of the new regulatory expectations concerning unsolicited proposals that will require greater scrutiny and competitive bidding.

8. Increasing Need to Consider National Budget Strategies, National Pipelines, and Priorities. With government budgets stretched, government officials recognize that PPP projects need to economically feasible and affordable and support national development goals and budget strategies. Line ministries and subnational agencies are increasingly being asked to coordinate their project pipelines with national pipelines (often controlled by national treasuries and ministries of finance) so projects can be compared and prioritized. This greater scrutiny helps ensure that national governments are not unwittingly committing themselves to debt that cannot be repaid and to fewer “impulsive” projects being approved.

9. Domestic Banks Understanding of PPPs Increasing in Emerging Countries. Many governments in emerging economies are making concerted efforts to inform and educate domestic banks about the opportunities of investing in PPPs. This positive trend will increase domestic liquidity and help government to find alternative financing for smaller PPPs which are not attractive to international investment banks.

10. Governments Marketing Opportunities to attract Foreign Direct Investment for PPP Projects. Governments are becoming increasingly aware that they need to market themselves if they wish to compete successfully for foreign direct investment. It is increasingly important that governments tell a good story about opportunities, present bankable projects and risk mitigation strategies if PPP investors are to be lured. As a result, many governments now mandate comprehensive feasibility studies to create an attractive procurement environment and opportunity for well-intentioned developers and investors. Marketing efforts are also being directed at diaspora investors concerned about enabling environments and perceived risks.

11. Emergence of New PPP Institutions that are Championing PPPs. Many new international institutions are championing PPPs. These include the Geneva-based United Nations Economic Commission for Europe PPP Center of Excellence’s affiliated regional centers of excellence that include the New Orleans Residence and Sustainability Center and the Frankfurt Healthcare PPP Center. Other institutions to watch include the World Association of PPP Practitioners (WAPPP) and the newly formed Afghan PPP Hub.  These centers all serve as knowledge hubs and center of excellence that can help promote PPP projects in certain sectors and countries in 2019.

Note: A version of this blog was first published as a LinkedIn article.