Developed markets are facing unprecedented challenges with the rapid urbanization taking place caused by rapid demographic growth. World Bank, claims that 90% of recent urbanization has occurred in developing countries, with urban areas gaining an estimated 70 million new residents each year.
Trends in South Asia and Sub-Sahara Africa, the two poorest regions of the world is expected to double in population by 2030. This will lead to massive pressure on local governments to house the world's poor and provide them the access to basic human needs such as health care, food, clean water, energy, education, transportation and sanitation.
Economic growth trends have not kept up with the urbanization. A great solution for local government and private companies is collaboration to overcome these challenges utilizing Public Private Partnerships (PPP).
Governments are turning to PPP a financial model driven by collaboration between public, private and nonprofit groups. PPP represent a innovative long term agreement between various parties in which each party contributes and shares some level of risk.
PPP allows a private consortium to assume the financing risk. This is an important instrument that can be used to help accelerate the development of infrastructure assets, along with basic urban services, to the poorest neighborhoods.
Some of the advantages of PPPs
Cost Savings-
The private sectors role as a partner fundamental drive is for economic gain which yields an incentive to continually improve productivity, thereby cutting overall project costs.
This also creates economies of scale to dive efficiencies and maximize returns on investments.
Performance Contacts-
PPPs typically adopt a performance based contracts which links payments to performance. This specifies project results in terms of quality and timing delivered, rather than how assets or services are provided.
Focus on outputs motivates innovation to take place by creating new methods and approaches for project execution that meets requirements at a more resource efficient manner.
Risk Mitigation-
PPPs are designed so that risk is transferred between the public and private sectors allocating particular project risk to the partner best able to manage that risk cost-effectively.
Common Project Risks
- Procurments
- Design
- Construction
- Operation
- Permit and Approval
- Political
- Commissioning
- Technical
- Policy and Legislative
- Financing
- Maintenance and Operation
- Currency
Source: Canadian Council for Public Private Partnerships.
Enhancing Public Management-
When governments utilize a private partner the public authority can transfer risks and responsibilities over the day-to-day operations of two or more phases of the urban infrastructure project to the private partner.
This frees the public sector to focus on other important policy issues such as regulating, performance monitoring and urban service planning.
Enhancing Resources-
PPPs have a uique ability to share a diverse range of resources, technologies, ideas and skills in cooperative manner that can work to improve how urban infrastructure assets and services are delivered to the people.
The private partner typically absorbs the financing risk, the public authority is not obliged to record the investment upfront as part of its bottom line surplus or deficit for the fiscal year.
This allows the transaction to remain "off balance sheet" meaning the government can borrow for other important projects without affecting calculations of the measure of its indebtness.
Joshua D. Mosshart BIO
Malia Ventures Inc.
Mosshart News
Source: UN Habitat
