Don’t count on PPP solutions – Global Issues

  • Notice by Jomo Kwame Sundaram (Kuala Lumpur, Malaysia)
  • Inter Press Service

PPPs as a miracle solution for everything

As Eurodad has shown, PPP financing has increased in recent years, particularly in the discourse on financing the Sustainable Development Goals (SDGs). Adopted by the UN in September 2015, the SDGs approved PPP financing.

Previously, the third UN Conference on Financing for Development in Addis Ababa in mid-2015 failed to secure adequate funding. This was mainly due to opposition from rich countries to a UN-led international tax cooperation initiative.

Instead, PPPs were strongly supported in the 2015 Addis Ababa Action Agenda. A few weeks later, SDG17 referred to PPPs as “means of implementation”. All of this was aimed at “encouraging and promoting effective public, public-private and civil society partnerships”.

PPPs have been promoted as a way to finance and deliver infrastructure, social services and, increasingly, climate-related projects. Supporters argued that PPPs would also help solve problems other than financing. PPPs, they claimed, would help improve project selection, planning, implementation and maintenance.

Promotion of PPPs

Some advocates even argue that only the private sector can provide high quality investment and high efficiency in the provision of infrastructure and social services. Private financing reduces the need for budget-constrained governments to raise funds upfront to finance, develop and manage projects.

Increasing private financing would also overcome the inability of the public sector to provide high-quality infrastructure and public services. There is no doubt that many government capacities have been weakened by decades of structural adjustment, austerity and shrinking public finances.

This situation has been aggravated by rich countries’ unfulfilled commitments to contribute 0.7% of their national income to official development assistance (ODA) on concessional terms. The North has also shown itself reluctant to effectively stem illicit financial outflows, for example due to tax evasion.

The promotion of PPPs has involved many means, media and institutions, including “donor” agencies, multilateral development banks (MDBs), UN agencies, international consultants, transnational accounting firms and the World Economic Forum ( WEF).

The World Bank has long encouraged private financial investment in development, and more recently “blended finance” and PPPs. In 2022, the influential WEF even proclaimed PPPs as essential to pandemic recovery.

Promote private financing

Such promotion of private finance has implications well beyond the actually modest amount of funds raised through “blended finance” and PPPs. Almost all projects financed in this way are presented as proof that private financing must be favored, in particular by guaranteeing returns thanks to public financing.

The World Bank and other MDBs devote considerable effort to advising governments on the use of PPPs. On the other hand, they have not made comparable efforts to improve the quality and efficiency of state-funded infrastructure and social services.

Over the years, the World Bank Group has produced different tools – including model language for PPP contracts, which favor the interests of the private sector – often to the detriment of the public partner, i.e. ultimately account of governments in need of financing.

Regional development banks – such as the Asian Development Bank, the African Development Bank and the Inter-American Development Bank – have dedicated strategic frameworks, networks and offices to support countries implementing PPPs .

National promotion of PPPs

Advocacy for PPPs has led to changes in laws, regulatory frameworks and policy environments at international, national and local levels. Developing countries have also started to include PPPs – to develop infrastructure and public service delivery – in their national development plans.

Many developing countries have enacted laws allowing PPPs and created “PPP units” to implement PPP projects. The World Bank, the International Monetary Fund (IMF) and regional development banks work closely with private partners to provide policy guidance advising governments on how best to enable PPPs.

All of this has transformed the formulation of public service delivery policies to attract private investors – an agenda that Daniela Gabor dubs the “Wall Street Consensus.” This involves “an elaborate effort to reorganize development interventions around partnerships with global finance.”

PPPs have not borne fruit

But concrete experiences have not confirmed this favorable impression promoted by PPP supporters. On the contrary, PPPs have become a major source of concern. It is difficult to find reliable data on international PPP trends. Additionally, different definitions and terminologies of PPPs have caused confusion in reporting.

The World Bank’s Private Participation in Infrastructure Projects Database reports on economic infrastructure – such as energy, transport, water and sanitation – in 137 low- and middle-income countries .

The Covid-19 pandemic has undoubtedly disrupted PPP planning, preparation and procurement. But even the World Bank admits that the delays and cancellations were not solely due to Covid-19, as the pandemic highlighted projects already in trouble for other reasons.

Nevertheless, the financial impacts of PPPs so far have been small, as the public sector continues to dominate. But little private investment – ​​including PPPs – goes to low-income countries. Most of these projects are concentrated in a few countries.

PPPs tend to be found in countries with large and developed markets, allowing for faster cost recovery and more secure revenues. This involves market “selection” – selection bias – with private investment going to wealthier urban areas rather than those most in need.

The major setbacks to the SDGs and climate progress over the past decade are not just due to finance. But they are more than enough to highlight that the recent use of blended finance and PPPs has made the situation worse rather than better. The private finance empire has no clothes!

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© Inter Press Service (2023) — All rights reservedOriginal source: Inter Press Service


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