In this section, Federico Villalobos interviews colleagues worldwide in the finance and infrastructure industry. The objective of these conversations is to provide readers with first hand experience from experts as well as an update on international best practices.
This week, we talked to David Baxter, recognized PPP specialist and practitioner and former former Executive Director of the Institute for Public Private Partnerships (IP3). As an industry expert, David analizes PPP schemes as a mechanism to close the infrastructure gap in emerging countries and key steps to successful project structuring.
“Financing is not sentimental and will always go to markets that offer the best security, manage risk the best, are politically stable, etc. ”
What is your view on the role of Public Private Partnerships (PPP) in closing the infrastructure gap in emerging markets?
Many governments do not have the funds to build and provide critical services and infrastructure that is needed by their citizens. As a result of this, more and more governments (the public sector) at national and sub-national level are looking for alternative financing models to fill the infrastructure gap. As a result, the public sector is reaching out to the private sector to finance projects in partnerships that share risk, introduce innovation, and which help form lasting partnerships with the private sector. I feel this is good, because the private sector can introduce innovation to the public sector, as well as free up limited public funds for other strategic initiatives that should be in the domain of the public sector only. I feel they re good, as long as their are procured through competitive and transparent processes that ensure that Value for Money (Vfm) is achieved.
What are the main key steps to develop a successful PPPs?
- Careful planning
- Financial due diligence
- A objective needs assessment
- A VfM and Public Sector comparator analysis
- Building institutional capacity to be able to carry out the PPP
- Ensuring that the enabling environment and legal frameworks are conducive to PPPs
- Collaborating with stakeholders
- Ensuring that politicians are aligned
Some people argue that it is always cheaper to finance infrastructure through public debt. What are your thoughts on this?
In many instances this is true, but this is not what PPPs are about. I feel that if proponents are going to argue PPPs on cost then they are missing the point. PPPs offer the following advantages:
- Alternative sources of financing for cash strapped government entities
- Innovation (technical, financial, operational etc.)
- The introduction of best practices
- The appropriate sharing of risk
Which emerging countries could you cite as an example of good practices on PPPs?
- South Africa, the Philippines, and Turkey are good examples
- The Gulf Cooperation Council (GCC) nations such as UAE and Saudi Arabia are worth watching
- Kenya, Tanzania, Ghana, Senegal, Morocco show great promise
Do you see increased competition to attract private capital to emerging countries now that economies such as the US are announcing plans for major investments?
Financing is not sentimental and will always go to markets that offer the best security, manage risk the best, are politically stable, etc. The US might attract a lot of attention from investors, but I believe that they will be mainly domestic investors, while international investors might still focus on the emerging markets as they have a greater stomach for risk and want greater returns on their investments which is morel likely to occur in the emerging markets.
