In 2019, I participated in PPP initiatives in the Kingdom of Saudi Arabia, Turkey, Sri Lanka, the USA, and Oman.
During government and international development events and projects, I was able to engage in a number of meaningful conversations with PPP thought leaders from both the public and private sectors about trends that they saw evolving that would impact the practice of PPPs in the next year or two.
These are some of the trends that I have identified from feedback that I received that I believe will shape the implementation of PPP projects in 2020 and beyond.
Trends
A Focus on “People First” PPPS – There is a growing sentiment that PPPs need to become more about people. As a consequence of this growing consensus, proponents of PPPs and governments are increasingly subscribing to strategies that are requiring the accommodation of the Sustainable Development Goals (SDGs) into their policy and planning documents. It can be assumed that this “people first” approach will increasingly underlie multilateral banks’ and development agencies’ conditional prescriptions for the financing of PPP initiatives.
A Growing Interest in Sustainable, Resilient, and Regenerative PPPs – A growing spinoff of people first PPPs is the understanding that in a 2020 world faced with the possibility of limited financial resources caused by a possible global recession that the motivations for PPPs need to include considerations of sustainability and resilience if they are to be considered bankable and viable. This renewed awareness is also being driven by concerns about building projects in environments that are prone to environmental risk that seems to increasingly acute, in times of extreme weather driven by climate change. The reality is that governments, investors, and insurers are becoming more concerned about risk and are demanding that projects mitigate these risks by being more resilient and sustainable. It is also increasingly important that elements of regeneration be built into project recovery strategies so that PPPs can recover quickly from extreme weather events.
A Surplus of Maturing PPP Projects – Many countries are now facing the reality that their PPP projects are maturing that were initiated in the enthusiastic first wave of PPP projects that were launched in the 1990s. In conversations, it was pointed out that 30 years seemed so far off in the 1990s that few governments were focused on the time when project contracts would expire and the projects would be handed back to their 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 great opportunities for PPP investors.
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 better 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.
E-Procurement and Demands for Competitive and Transparent Procurements – One of the biggest concerns of potential developers of and investors in PPP projects in emerging markets has been the concern about rigged procurements and corruption. Governments are increasingly adopting measures to ensure that improved governance of PPP procurements is creating an environment of transparent and competitive procurement. One approach has been the increasing adoption of e-procurement platforms – often sponsored by multilateral banks and development agencies – that ensure that the procurement playing field is leveled and that cash-strapped governments are not being milked by unscrupulous public and private sector players who are focused on profiteering instead of building feasible and sustainable infrastructure that benefits all.
Increasing Need for Digital Infrastructure PPPs – In a rapidly globalizing digital infrastructure world there is an increasing need for the governments to engage with the private sector to sustainably and resiliently modernize and upgrade their digital infrastructure. The private sector is a good partner for governments as they can introduce innovation that can mitigate obsolescence and have the platforms to perform better than the public sector. Multinational communication companies are also good project partners for governments as they can help them integrate their hard and soft digital ecosystem infrastructure into transnational global networks that are increasingly transcending national boundaries.
Growing Concern about Institutional Abilities and Ability to Deliver Successful PPPs – It is against growing scrutiny by governments and investors about the success rates of PPP projects that there is a growing focus on improving government institutional abilities to deliver projects. This is resulting in increasing efforts to develop and improve the procurement and management capabilities of public sector officials. This trend will result in greater mastery of PPP projects by the public sector and will avoid the exploitation of PPP initiatives by malfeasant actors. In many countries newly, constituted PPP Units are also being formed that will provide technical support to novice PPP project proponents.
Mega-Infrastructure Projects – Bigger and bigger projects are being planned by countries that are focusing on achieving their development goals. However, as economic development needs caused by growing populations is becoming a national sustainability concern, governments are trying to fast-pace their development through massive infrastructure projects (e.g. the many Belt and Route projects in Asia). However, due to a lack of national funding, it is becoming more likely that governments will rely on private sector partners to provide alternative financing. There is a risk that a move towards mega-infrastructure projects will result in fewer bidders for these types of procurements, thereby narrowing the pool of qualified and able private sector partners. This will test the government’s abilities to launch true competitive procurements and could strain their national development budgets.
Increasing Need to Consider National Budget Strategies, National Pipelines, and priorities – In times of financial stress, governments are now focusing on the importance of developing budget strategies that are focused on identifying economically feasible and affordable PPP projects that match national development goals. This is leading to governments requiring line ministries and subnational agencies to coordinate their project pipelines with national pipelines (often controlled by national treasuries and ministries of finance) so as to prioritize projects in a meaningful way. This is resulting in greater scrutiny to ensure that national governments are not unwittingly committing themselves to debt that cannot be repaid. An outcome of this new due diligence is that “impulsive” projects are not being entertained as much as they were in the past.
Domestic Banks Understanding of PPPs is Increasing in Emerging Countries – Many governments in emerging economies are making concerted efforts to “educate” domestic banks about the opportunities of investing in PPPs. This positive trend will increase domestic liquidity and help the government to find alternative financing for smaller PPPs that are not attractive to international investment banks.
Increasing Awareness of the Need to Governments to Market Opportunities if they wish to attract FDI for PPP Projects – Governments are becoming increasingly aware that they need to market themselves if they wish to compete successfully for FDI. The reality is that investors are not sentimental, and it is increasingly important that governments tell a good story about opportunities, meaningful (bankable) projects, and risk mitigation if PPP investors are to be lured. As a result, many governments are now ensuring that comprehensive feasibility studies are mandated as a mechanism to create an attractive procurement environment and opportunity for well-intentioned developers and investors. “Marketing” is also being directed at diaspora investors who are concerned about enabling environments and perceived risks.
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.
A Growing Number of Transnational PPPs – China’s BRI imitative and regional development projects in Asia and Africa are seeing a surge in transnational PPP infrastructure projects. These desperately needed projects that allow countries to share resources and improve trade cooperation and economic development are facing specific challenges that are increasingly being addressed. Challenges include ownership of projects, profit sharing, coordinating national priorities, and regulatory coordination. As these issues are addressed the climate is improving for transnational projects.
The Emergence of New PPP Institutions that are Championing PPPs – Many new international institutions are championing PPPs. These include the Geneva-based UNECE 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 institution to watch include the newly formed Afghan PPP Hub, and the World Association of PPP Practitioners (WAPPP). These centers all serve as knowledge hubs and centers of excellence that can help promote PPP projects in certain sectors and countries in 2019.
The Growth of Islamic Finance – More and more PPPs are being developed in Islamic countries. As a result, institutions such as the Islamic Development Banks and national Islamic development banks are creating guidance documents and developing best practices that will support the growing desire for Islamic Finance in the MENA, Central Asian, and GCC markets. 2019 will be a pivotal year in the advancement of the Islamic Finance of PPPs.
Sectors to look at – I believe that the traditional infrastructure areas of PPPs such as digital infrastructure, transportation, power (especially renewables), and water infrastructure will still be a focus of most governments – especially those of more developed countries. However, social service PPPs for healthcare, housing, and education will be areas of increased focus, especially in emerging economies. These growing interest in these projects will be driven by countries that are attempting to achieve their Sustainable Development Goal (SDG) objectives.
Conclusion
There is so much change happening in the world of PPPs and 2020 will be a promising year. I firmly believe that PPPs have a strong future. PPPs under the guidance of best practitioners are constantly evolving to accommodate the change. I believe that this will continue in 2020.
