Private Sector Participation In Infrastructure Research Articles

Private sector participation in infrastructure in emerging market and developing economies: Evolution, constraints, and policies

AbstractThe private sector can play important roles in closing the infrastructure investment gaps in emerging market and developing economies. However, private participation in emerging market and developing economies' infrastructure has declined over the past decade, reflecting persistent structural challenges and risks in the business environment. The decline was broad‐based and gained momentum following the 2013 taper tantrum and the end of the commodity super cycle. Incentivizing greater private sector participation in infrastructure will require policies to improve access to long‐term finance and to derisk the business environment. This will require efforts to strengthen the banking sector regulation and supervision, to improve the legal and contractual environment, and to limit information asymmetries. Deepening local financial and bond markets can make it possible for infrastructure bonds to be issued in local currencies and minimize potential currency mismatches. Improvements in the broader business environment can benefit from greater macroeconomic stability and stronger institutional frameworks. Policies that improve the quality of projects at entry, address currency risk, relax capital controls, and enable cost recovery pricing can unlock private sector participation in infrastructure financing. Strong government support, including ensuring regulatory quality, and providing well‐targeted guarantees and subsidies, can play a critical role.

Expediting Growth and Development: Policy Challenges Confronting Africa

Abstract This article discusses five of Africa’s most pressing development challenges for the 2020s, namely, infrastructure bottlenecks, fragility of economies due to underdiversification, youth unemployment, high fertility, and climate change. These either infringe on the region’s ability to grow or bring about volatility of growth, encumbering the continent’s efforts to develop. Policy will have to grapple with the challenges of How to diversify African economies to engender resilience, close the infrastructure gap, reign in fertility, generate productive employment opportunities for youth, and climate proof African agriculture. Governments will need to partner with, and leverage, the private sector to fast-track closing of these gaps. For instance, strong institutions and appropriate regulatory and policy frameworks should support capability building by enterprises and facilitate private sector participation in infrastructure. Bankability of projects is key if African governments are to leverage the “limitless” resources held by institutional investors to finance Africa’s infrastructure build. To secure long-term development, policy makers should decisively address fertility and youth employment challenges. Interventions that raise the opportunity cost of child bearing for women (ease access to education and paid work for women and girls) are effective in lowering fertility and should be pursued. Similarly, interventions that raise productivity in agriculture and household enterprises hold promise to absorb unemployed youth in the short to medium term, while reorienting education systems to science, technology, engineering, and math and vocational education, with emphasis on quality, should expand opportunities in the medium to long term. With respect to climate change mitigation and adaptation, policy should be directed at climate proofing agriculture and greening the electricity grid. Overcoming these challenges should expedite attainment of the 2030 sustainable development goals.

Unpacking the Public Private Partnership Revival

This paper examines the recent resurgence of interest in public-private partnerships (PPPs) to provide infrastructure in developing countries. First, the paper demonstrates that there has been a revival of support for private sector participation in infrastructure. Second, the paper argues that this revival differs from earlier attempts to increase the involvement of the private sector in public service provision in a number of respects. In particular, the current support for PPPs is related to an increased availability of global financial capital. Third, the paper considers the implications of this distinct feature of the revival for development.

Private sector participation in infrastructure for development

This article reflects on the variety of finance sources to African countries, including aid flows, remittances, development finance, private equity and bonds and foreign direct investment. In order to address the poverty challenge, estimated at about $66 billion annually, these finances must be applied appropriately in various economic sectors, in particular the infrastructure sectors. These include both physical assets (transport, energy, water and sanitation and information and communications) and social services (hospitals and clinics, education and low-income housing). Governments are ultimately responsible for ensuring access to infrastructure for their citizens. However, developing-country governments are unable to address the infrastructure backlogs, let alone develop new assets, especially in the least developed countries in Africa. Governments rely on alliances with international partners, development finance institutions and, importantly, the private sector. However, the rules of engagement with the private sector need to be redefined, with proper emphasis on bringing affordable yet quality access to poorer communities.

Understanding and Mitigating Political Risks of Public-Private Partnerships in U.S. Infrastructure

The U.S. has done much to promote the benefits of private sector participation in infrastructure in recent years. However, several major bottlenecks have impeded the implementation of these advances. Most challenging has been the myriad and continuing political oppositions, public controversies, and related political risks associated with private sector participation. It is now generally recognized that the biggest threat to private sector investment in infrastructure is not financial, but political. Relative to emerging economies, private investment communities in the past have generally considered the U.S. and other industrialized economies, with their efficient democratic institutions, as free from political risks. But the challenges related to political risks in infrastructure development through public-private partnerships have been especially problematic in the U.S. in recent years. Many aspects of the unique political culture in the U.S. have contributed to this perception of high political risks. Among others, they have included: (1) a strong tradition of publicly led and publicly subsidized infrastructure, (2) the resulting public unease around putting infrastructure assets in the private hands, (3) the bottom-up and decentralized planning and decision-making approach that leads to fragmentation in infrastructure development processes, (4) the political fragmentation resulting from 50 states having 50 different sets of political culture and rules of engagements, and (5) a legacy of strong collaborative relationships between public sponsors and local contractors motivated in part by the lengthy and costly infrastructure development process. The primary purposes of this study are to identify and better understand the multitude of potential political risks that can surface when the private sector participates in infrastructure development in the U.S., based on lessons learned from both within and outside the U.S., and to develop a broad risk mitigation strategy that can serve as a guideline for policymakers as they begin to undertake public-private partnership efforts. Because many of the political challenges and risks currently facing U.S. private participation efforts occur in the project inception and procurement phases, the discussions in this report focus on public sector responses in the early phases of project development.

Private Sector Participation in Water Infrastructure

Many countries have sought the involvement of the private sector to upgrade and develop their water and sanitation infrastructure and improve the efficiency of water systems. However, high capital intensity, large initial outlays, long pay-back periods, immobility of assets and low rates of return generate high risks. These factors, when combined with poor initial information and weak investment environment, limit the scale of private sector participation in water and sanitation infrastructure. Recognising this, the OECD has developed practical guidance, building on the OECD Principles for Private Sector Participation in Infrastructure, to help governments and other stakeholders to assess and manage the implications of involving private actors in the financing, development and management of water and sanitation infrastructure. The resulting OECD Checklist for Public Action provides a coherent catalogue of policy directions for consideration by governments, including appropriate allocation of roles, risks and responsibilities, framework conditions and contractual arrangements necessary to make the best of private sector participation and harness more effectively the capacities of all stakeholders. This title is co-published with the OECD This title belongs to OECD Report Series . ISBN: 9781780406091 (eBook) ISBN: 9781843392712 (Print)

Risks, Contracts, and Private-Sector Participation in Infrastructure

This article examines how risk is reflected in infrastructure regulatory contracts, using examples from water utilities to illustrate key points. Partnerships between public and private sectors in intensive capital network services require risks to be assigned to the contractual party that is better able to mitigate them or to bear them. After identifying risks that must be addressed in infrastructure contracts, their classification, allocation, and impact are presented along with the measures to minimize risks. Two contracts in the water sector in Portugal are analyzed. One arrangement corresponds to a public–private partnership (PPP) of the purely contractual type (concession arrangement) and the other to an institutionalized PPP (mixed company). We conclude that risk is a key issue in contracts with the private sector; an appropriate allocation of risks is a necessary condition for successful contracts.

How to Harness the Positive Potential of KKN: Explaining Variation in the Private Sector Provision of Public Goods in Indonesia

This article argues that the two prevailing perspectives that explain private sector participation in infrastructure in developing countries – new institutional economics and the rent-seeking approach – cannot account for the evident variations within and across sectors in a given country. This study uses two cases from Indonesia's attempt to promote private investment in toll road construction to demonstrate that a firm-level analysis is adequate to the task. In particular, the specific incentive structure that a rent-seeker faces may explain whether positive or negative rent will be facilitated.

Private Sector Participation in Infrastructure in Africa (1970 to 2007)

This study appraises the record of private sector participation in infrastructure (PPI) in Africa using the updated PPIAF database for 1970 to 2007. The results of almost two decades of regulatory reforms, implementation of the privatization and liberalization agenda, combined with the influx of private investment in infrastructure have decidedly been mixed. There has been a “policy mistake” founded on the dogma that infrastructure would be financed by the private sector. For various reasons, mainly involving investment climates and rates of return, private investment has been limited in terms of volume, sectors and countries. The current global economic and financial crisis poses a new threat. Its effects are already being felt in greater delays in financial closures, more cancellations, and higher financing costs for PPI projects. The lessons of experience, however, show that most countries will be better off working out a partnership with the private sector. To begin to solve Africa’s infrastructure investment problems, broad institutional reform along with greater financial commitments by governments and the private sector will be required. Private participation in infrastructure requires fiscal reform and improvements in public sector management. It also requires careful attention to the basics of project design, including identifying and allocating risk and ensuring sound procurement practices.

Private Sector Participation in Infrastructure in Africa

Recent years witnessed a profound reassessment of public towards the infrastructure sectors globally with a palpable shift in orientation towards private management and ownership. This study appraises the record of private sector participation in infrastructure (PPI) in Africa. The results of almost two decades of regulatory reforms, implementation of the privatization and liberalization agenda, combined with the influx of private investment in infrastructure have decidedly been mixed. There has been a policy mistake founded on the dogma that infrastructure would be financed by the private sector. For various reasons, mainly involving investment climates and rates of return, private investment has been limited in terms of volume, sectors and countries. The experience of the last 15 years, however, shows that most countries will be better off working out a partnership with the private sector to achieve sustained efficiency gains and minimize fiscal financing requirements. To begin to solve Africa's infrastructure investment problems, broad institutional reform along with greater financial commitments by governments and the private sector will be required. Private participation in infrastructure requires fiscal reform and improvements in public sector management. It also requires careful attention to the basics of project design, including identifying and allocating risk and ensuring sound procurement practices.

Infrastructure Development in the Pacific Region

DOI: 10.1355/ae25-2k Infrastructure Development in the Pacific Region. Edited by Akira Kohsaka. New York: Routledge, 2007. Pp. 256. This volume has an overview and eleven country chapters comprising Australia, Canada, China, Hong Kong, Japan, Korea, Malaysia, New Zealand, the Philippines, Singapore, and the United States. It is based on a study by the Pacific Economic Outlook (PEO) Structure, a task force under the Pacific Economic Cooperation Council (PECC) for projections and quantitative analysis. It is replete with statistics and figures, with six chapters' empirical estimates confirming the positive relationship between infrastructuregrowth nexus and productivity. Two trends are clearly underscored: private sector participation in infrastructure development punctuation somewhat by the Asian financial crisis and non-physical infrastructure including human and knowledge-based capital besides traditional infrastructure. Information communication technology has revolutionized electronic highways for over-the-wire or electronically mediated connectivity. The volume aims to draw implications for policy incentives to support a broader set of alternative providers of infrastructure, further challenged by diverse developmental stages in the PECC region and changing role of government with public-private partnerships in infrastructure. The overview chapter addresses the knowledgebased economy in the context of new technologies which impinge on institutions both in functions and modalities of infrastructure provision. Privatization and contracting-out have implications on ownership, management, finance and other operations. The overview on the current infrastructure status in the region draws on the World Bank for information and studies given its role in financing infrastructure. In addition, the PEO estimates of output elasticity of infrastructure investment suggest strong spillover effects with Japan as a case study. Among some policy issues raised, public investment is a declining trend among mature advanced economies in contrast to more privatization since the 1908s in developing economies, especially in non-physical, soft infrastructure in the knowledge-based economy. It is heartening to know that the Pacific emerging market economies have caught with the advanced economies on new infrastructure, though the gap between emerging markets and other developing economies remains in terms of output in personal computers. What seems remiss in the overview as hard-to-knit-together highlights of country chapters for overall PECC-wide policy implications is perhaps compensated by specific country details of uneven quality. Typically as for all chapters, Australia by Tony Makin and Satya Paul starts with the historical context and role of government at different levels as the traditional infrastructure provider, with the private sector more involved in a range of public private arrangements. Data from national accounts are supplemented by a review of empirical studies of public infrastructure on productivity growth under different approaches (production, cost and profit functions), noting a general equilibrium model for social rates of return is beyond the chapter. Kim Storey on Canada estimates the economic impact of infrastructure, noting different types of infrastructure (energy, transportation, telecommunications and social) under various levels of government and highlighting the importance of provincial and local levels especially in health care and education. Estimates of the economic impact of infrastructure for 1961-2000 have reasonable results. Like other advanced economies, Canada ponders how best to renew and expand infrastructure with diverse interests from the environment to innovation. Slow deregulation with political implications means less private sector participation in infrastructure compared to Australia. Guoqiang Yue's review of China's infrastructure development since 1978 is distinctly of a planned economy in five-year plans across the largest PECC economy with expected large regional diversity. …

Private Sector Participation in Infrastructure Investment

rivate participation in the provision of infrastructure is less than was once expected, particularly in developing countries. Some reasons for this are identified in this paper. It is argued that the problem of dealing with market power in the provision of infrastructure services is similar to that of other forms of procurement in the presence of long-lived and immobile assets employed specifically to produce an item or service. From this perspective, comments are offered on the inhibitors to private participation and on features of contract design that might limit impediments to private investment in this sector. P The financing required for infrastructure services in East Asia and the Pacific over the next five years was recently estimated at over US$300 billion, with the bulk of this needed in China (see van der Linden, 2004). The figure will now be even larger following the 2004 Boxing Day Tsunami. The construction of new assets and the renewal of existing assets are both required. With private sector support, these tasks could be met more efficiently. Yet flows of private investment into the infrastructure sectors of developing countries peaked in 1997 and have declined ever since — the turning point explained in part by the Asian financial crisis (Harris, 2003). There has also been a high rate of renegotiation of contracts, suggesting that the structure of the arrangements has been an important contributor to the reconsideration by private investors of these types of projects. Harris (2003) refers to a ‘widespread pessimism’ about private infrastructure projects. Some of the issues in the provision of infrastructure services, including the risk of the abuse of market power and the value of separation around the key bottleneck element in the supply of infrastructure services, are reviewed in the next section. How the private sector might contract with the government is then examined and the case for a complementary relationship between regulatory institutions and the use of contracts is made. Options are presented for the operation of the regulatory process, with special attention to rules on price setting. The final section summarises some implications for designing policy on private sector participation in infrastructure, with particular attention to the situation in developing countries.