Public-private partnerships and the 2030 Agenda for Sustainable Development
The implementation of the 2030 Agenda for Sustainable Development and the Sustainable Development Goals presents an immediate challenge.
In particular, the financing required for new infrastructure (including clean water, healthcare, and access to energy for all) is huge – amounting to about $5 trillion per year globally. Given limited government resources, a considerable amount of private finance will be required to fill this gap, and public-private partnerships (PPPs) have been seen as a possible modality through which to attract these additional resources.
Nevertheless, the ultimate rationale of a PPP should be to add value for money – in other words, to improve the coverage, access, and quality of a given service to the citizen in a cost efficient manner compared to the alternative of public procurement. The evidence, however, suggests that PPPs have often tended to be more expensive than the alternative of public procurement, and in a number of instances they have failed to deliver the envisaged gains in quality of service provision, including its efficiency, coverage, and development impact. In other words, they have often failed to yield “value for money” in its broadest sense. This includes taking into account not just the financial costs and efficiency gains deriving from a project but also its longer-term fiscal implications (including the risks of any contingency liabilities) as well as the broader welfare benefits for society, such as the impact on poverty and sustainable development.
Moreover, the impact of PPPs varies greatly across sectors. Research findings indicate that PPPs have generally been better suited for economic infrastructure such as transport and electricity, where demand is relatively steady and the impact on service quality easy to assess, and where better quality infrastructure can lower cost at the operational stage. However, they have to date been less likely to deliver efficiency gains in the social sector, such as hospitals and schools, where access and equity are major concerns.
A United Nations Department of Social Affairs (UN DESA) working paper titled “PPPs and the 2030 Agenda for Sustainable Development: Fit for Purpose?”, co-authored by KS Jomo, Anis Chowdhury, Daniel Platz and me, has attempted to shed light on these issues and more broadly to discuss the existing and future potential of PPPs in helping achieve the 2030 Agenda for Sustainable Development, in particular in the area of infrastructure investment. The paper highlights the fact that PPPs have in many instances failed to deliver value for money in its broadest sense and points out that, despite a recent rise in the private sector’s participation in infrastructure finance in developing countries, especially in electricity and telecommunications, private finance continues to provide just a small portion of aggregate infrastructure investment in the developing world.
The UN DESA study stresses that for PPPs to become an instrument for financing key economic infrastructure projects, it is necessary that countries have in place the institutional capacity to create, manage, and evaluate them. According to the authors, an enabling institutional framework for PPPs would endow countries with four interrelated capacities that should have the benefit of ensuring that PPPs are undertaken for the “right reason”: ensuring an improvement in the quality and cost efficiency of a given infrastructure service to the citizen and not as a vehicle for “off budget” activities. These, as described in the below figure, are as follows:
The ability to correctly identify and select projects where PPPs would be viable. This would entail sound cost-benefit analysis and would be critical for reducing costs and enhancing welfare benefits.
The structuring of contracts to ensure an appropriate pricing and transfer of risks to private partners. This is a key requirement if PPPs are to deliver high-quality and cost-effective services to consumers and the government. This would depend on sufficient competition in the bidding process and also depend upon a transparent fiscal accounting and reporting standard.
Establishment of a comprehensive and transparent fiscal accounting and reporting standard for PPPs. This would allow for comprehensive disclosure of all risks, including contingent fiscal liabilities and medium and long term implications and discourage governments from placing PPP projects off-budget.
Ensuring legal, regulatory and monitoring frameworks that ensure appropriate pricing and quality of service. Such a framework would also need to ensure a competitive environment during the bidding process and take account of the broader welfare benefits of projects, including social externalities and the implications for sustainable development.
Overall, by strengthening transparency and public scrutiny, and by safeguarding the public interest, an enabling institutional framework with the above-mentioned four interrelated capacities would also serve to reinforce democratic accountability and popular acceptance of PPPs.
For a number of developing countries, setting in place these institutional and governance capacities would require assistance from the international community in the form of technical support and capacity building. A specific area where global action would be helpful is in the discussion of an internationally accepted accounting and reporting standard which can promote transparency about fiscal consequences of PPPs.
This brings us to the issue of the need for further work in developing international guidelines for PPPs. In recent times, many important initiatives have been underway, at national and international levels. There nevertheless remains the strong need to pull together these various initiatives and re-evaluate them, in an inclusive manner, in light of the 2030 Agenda for Sustainable Development. The commitment of world leaders during the Third International Conference on Financing for Development (which took place in Addis Ababa in July 2015) to hold “inclusive, open and transparent discussion when developing and adopting guidelines and documentation for the use of PPPs, and to build a knowledge base and share lessons learned through regional and global forums” is an important step forward. The UN, as the most universal international forum for international policy-making, can play a key role in forging these new guidelines for PPPs, which should fully support the implementation of the 2030 Agenda for Sustainable Development.