Rome wasn’t built in one day, nor is a PPP Market
Published on 28 November 2019
Having been involved already in a dozen or so emerging PPP markets developing their PPP Frameworks, the most often complaint from the political leadership is the apparent lack of progress. Politicians, intrinsically impatient as they are, want to see results within their reign.
Unfortunately, that’s not how it works with PPP nor any other major reform or substantial infrastructure development. Or building Rome…..
Experience tells us that even in the most developed countries it takes 5 to 10 years before a government initiative for a more programmatic approach towards private sector participation in public service delivery actually materialises. And that is in highly developed countries with strong government institutions, sophisticated financial markets and competent developers.
In emerging markets and developing economies it is even more challenging to get PPP off the ground despite the fact that the need for infrastructure development through private resources is high.
In matured PPP markets like UK, India and Korea, the first 5 years were characterised by some ad-hoc projects and the gradual development of a PPP framework to facilitate a more programmatic approach. This typically led to the establishment of some kind of a PPP unit issuing guidance notes, drafting regulations and supporting implementing agencies in a more consistent project preparation. In other words, learning by doing.
Intriguingly, these countries which have been amongst the largest PPP markets with over 700 projects (and India even over 1,000) are currently revisiting their PPP program. It could be argued that it takes some 5-10 years for a market to mature i.e. before a PPP pipeline materialises and that after 20-25 years of nurturing, the market needs to be revamped.
In upcoming PPP markets like Kazakhstan, Bangladesh or the Philippines it has taken substantially longer for a PPP program to take off. Already in the early nineties legislation was adopted to facilitate PPP in these countries. The initial use of PPP was limited to some concessions in the power sector with mixed results. After some 15-20 years (!) the PPP frameworks in these countries were further refined and since 2010-2015 these countries have a fairly well established legal and institutional framework allowing them to promote PPP in a more systematic and programmatic manner. The Philippines now has some 130 PPP projects awarded and Bangladesh some 60 projects (as per PPP Knowledge Lab) and their project pipeline is growing. Kazakhstan even announced recently it had over 600 PPP agreements concluded as stated by Minister Ruslan Dalenov at a recent PPP conference. A closer look at these PPP projects learns that these are mostly very small-scale contracts with an average project value of less than $ 6 thousand e.g. providing catering services or managing kindergartens.
Every country can develop and implement PPP projects, but to do it in a systematic, programmatic and efficient manner takes time. Highly developed countries have proven to be able to launch substantive programs within 5 to 10 years, whereas emerging markets may need 10 to 20 years before they have adequately refined their frameworks, including periodic amendments to legislation or policies, establishing the necessary institutions and continuous capacity building. Not implying they should not do projects in parallel because as also highlighted by the APMG PPP Certification Guide it makes sense to develop a framework and projects in parallel.