In 2013, investment commitments to infrastructure projects with private participation declined by 24 percent from the previous year. It should be welcome news that the first half of 2014 (H1) data – just released from the World Bank Group’s Private Participation in Infrastructure (PPI) database, covering energy, water and sanitation and transport – shows a 23 percent increase compared to the first half of 2013, with total investments reaching US$51.2 billion.
A closer look shows, however, that this growth is largely due to commitments in Latin America and the Caribbean, and more specifically in Brazil. In fact, without Brazil, total private infrastructure investment falls to $21.9 billion – 32 percent lower than the first half of 2013. During H1, Brazil dominated the investment landscape, commanding $29.2 billion, or 57 percent of the global total.
Four out of six regions reported declining investment levels: East Asia and the Pacific, South Asia, Africa, and the Middle East. Fewer projects precipitated the decrease in many cases. Specifically, India has experienced rapidly falling investment, with only $3.6 billion in H1, compared to a peak of $23.8 billion in H1 of 2012. That amount was still enough to keep India in the top five countries for private infrastructure investment. In order of significance, those countries are: Brazil, Turkey, Mexico, India, and China.
Sector investments were paced by transport and energy, which together accounted for nearly all private infrastructure projects that were collected in this update. The energy sector captured high investment levels primarily due to renewable energy projects, which totaled 59 percent of overall energy investments, and it is poised to continue growth due to its increasing role in global energy generation.
The energy sector also had the biggest number of new projects (70), followed by transport (28), then water and sewerage (12). However, transport claimed the greatest overall investment, at $36 billion, or 71 percent of the global total.
While we need to see what the data for the second half of 2014 show, what we have to date suggests that infrastructure gaps may continue to grow as the private sector contributes less. It also suggests that, in many emerging-market economies, there is much work to be done to bring projects to the market that will attract private investment and represent a good deal for the governments concerned.
The Latin America and the Caribbean region is crying out for infrastructure improvements. An investment estimated at 5 percent of the region’s GDP — or US$250 billion per year — is required to develop projects that are fundamental for economic development. This includes not only improving highways, ports and bridges, but also building hospitals and creating better transport, public transit and other mobility solutions for smarter cities. Rising demand for infrastructure also is prompting countries to redouble efforts to attract greater private investment
At the Multilateral Investment Fund (MIF), as at the World Bank Group, we believe that public-private partnerships (PPPs) can help governments fill this infrastructure gap. However, the projects must be implemented effectively and efficiently to achieve social and economic objectives.
Governments in the Latin America and the Caribbean region not only lack financing to address the infrastructure gap, but also face challenges in selecting the appropriate large infrastructure projects, planning the projects, managing and maintaining infrastructure assets — and gaining public support for private investment in public infrastructure.
However, PPPs are gaining ground in Latin America and the Caribbean. Beyond the larger economies of Brazil, Colombia and Mexico, assistance from the MIF and the Inter-American Development Bank (IDB) has enabled countries such as Paraguay to develop laws that pave the way for PPP projects. Just this week, Paraguay announced its first such project, which involves an investment of US$350 million to improve and build more than 150 kilometers of roads.
PPPs have been moving beyond classic interventions in public infrastructure, which have typically included roads, railways, power generation, and water- and waste-treatment facilities. The next wave of PPPs increasingly involves and provides social infrastructure: schools, hospitals and health services. In Brazil, IFC, the private sector arm of the World Bank Group, helped create the Hospital do Subúrbio, the country’s first PPP in health, which has dramatically improved emergency hospital services for one million people in the capital of the state of Bahia.
In many countries, central governments have devolved the responsibility of infrastructure service provision to the sub-national level, which is essential for economic growth. Along with this devolution of provision responsibility comes the requirement to raise revenues, enhance efficiencies, improve commercial viability, and reduce a dependence on external financial support — including central government guarantees.
However, central governments are increasingly unwilling or unable (due to limitations of fiscal space) to guarantee sub-national borrowings. This new paradigm is testing the sub-nationals’ ability to raise financing to fulfill newfound responsibilities in infrastructure service provision.
Perhaps this is a blessing in disguise. Historically, easy access to sovereign guarantees has created perverse incentives for not pursuing more sustainable financing solutions. This dependence has also tainted the way that sub-nationals are perceived by the markets, by making them seem like reactive agents of development. This in turn has limited their access to finance and therefore their ability to develop. This approach must evolve, because whether the focus is climate change, massive migratory movements, or basic infrastructure needs, the struggle to advance the global fight against poverty and unsustainable development may be won or lost primarily at the local level in developing countries.
Do you know of innovative Public-Private Partnerships (PPPs) in emerging markets that are delivering better services for people? We’re trying to find out about more of these examples through a Public-Private Partnerships (PPP) Short Stories Competition.
Experience shows that well-designed PPPs can be an important development tool, and can enhance delivery of basic infrastructure services to those who need it most. By allocating risks between public and private parties, introducing new technology and improving operational efficiencies, PPPs can help governments maximize the effectiveness of scarce public funding.
We also know that some PPPs haven’t met expectations. And we know that PPPs are not a panacea for solving all gaps in services. They need to be used selectively. So we’re trying to identify and share lessons from successful PPPs around the world, so that governments, civil society, consumers, investors and the environment can all benefit.
We’re sure that there are many good stories out there that not enough people know about. We’re hoping to hear from students, practitioners, policymakers and anyone interested in PPPs. From these submissions, we hope to identify practical solutions that can be applied by governments.
Here’s the competition website to submit your case studies, essays, and video submissions on innovative solutions for PPPs. Please forward this to your networks. We welcome submissions in English, French and Spanish. Submissions will be judged by an independent panel using several criteria, including the identification of actionable ideas, replication potential, and relevance to the World Bank Group’s twin goals: ending extreme poverty by 2030 and boosting shared prosperity (measured as the income of the bottom 40 percent in any given country).
The winner(s) will be invited to offer a presentation at a major PPP event in London in mid-June, and there is a cash prize as well.
The deadline for submissions is March 31, 2015. I invite you to follow us on twitter @WBG_PPP to keep up with our work and PPP-relevant news.
The competition is sponsored by the Public Private Infrastructure Advisory Facility (PPIAF).
Transparent, competitive bidding is a sound way for the public sector to buy goods and services. It is also standard procedure for Public-Private Partnerships (PPPs). Besides reducing opportunities for corruption, this approach generally attempts to achieve the best value for money and is perceived as fair by all stakeholders. When the sums involved are big, for example, in large infrastructure projects, transparency in government procurement becomes even more critical. Unsurprisingly, competitive bidding is considered best practice in most countries, not only in the public sector but also for corporations and institutions such as the World Bank Group.
This system works well when a government knows exactly what goods and services are procured for infrastructure development that best serve the public interest. But in many developing countries, governments may not have the requisite capacity and resources to define the scope of the project, or to prepare the tender documentation. Such situations often lead to inadequate infrastructure development. Sometimes the private sector uses such opportunities to proactively submit proposals for infrastructure projects on their own without waiting for a government initiated tender.
When the private sector submits such types of proposals, they are called Unsolicited Proposals, or USPs. USPs are an exception to the typical government-initiated approach and allow a private company to initiate the process. A private-sector entity (“USP proponent”) reaches out to the government with a project proposal to develop an infrastructure project. Typically, such a project may not have been identified within the government budget or policies, and the project’s purpose and need may not have been defined. In some instances, a USP may be nothing more than a mere idea or concept when it is presented to the government.
Recent data from the World Bank’s PPP Group and PPIAF show that the telecommunications sector led private participation in infrastructure in emerging markets in 2013. At $57.3 billion, the telecoms sector barely edged out energy, with both representing 38 percent of total PPI. Although total PPI sank by 24.1 percent in 2013 compared with 2012 levels, the telecom sector fell by only 7 percent, demonstrating its relative resilience.
Unsurprisingly, more than half of PPI telecom investment is in the mobile access segment. The top five projects in the telecom sector in every region are in mobile. The next-largest segment is multi-service providers, with 44 percent of all investments.
The World Bank’s Public-Private Partnership Group and Public-Private Infrastructure Advisory Facility report that total private participation in infrastructure (PPI) fell in the transportation sector in emerging markets by 39 percent to $33.2 billion in 2013, compared with 2012 levels.
In part, this reflects a broader trend – overall, PPI in all infrastructure sectors fell by 24 percent. The biggest drop was in South Asia, which saw PPI in transport fall from just over $20 billion in 2012 to approximately $3 billion in 2013, mostly because of significant decreases in India. Two other regions – Latin America & the Caribbean (LAC) and Eastern Europe and Central Asia (ECA) – also saw decreases. PPI in transport increased in East Asia and the Pacific (EAP) and Africa, but not by enough to offset decreases elsewhere.
2013 Transport PPIs by region
This is not good news for the world’s poor. Transportation is a critical component of development and growth, enabling people to access schools, hospitals and markets. It facilitates labor mobility and ensures that raw materials and finished goods get to customers. In rural areas, transportation systems provide an economic and social connection with the rest of the country. Within cities, good urban transportation is often the only form of transportation available to the poor. It also improves the flow of goods and services, reduces greenhouse gas emissions, and improves the overall quality of life.
Most would agree that technology solutions exist for most every seemingly intractable problem. Yet often our greatest challenge is to match the problem with the solution. In my various “technology for development” and trade promotion roles with the United Nations and World Bank, it is so clearly evident that government leaders know what problems they need to solve, but are simply unaware of the technology solutions available to them. Even the most highly informed development experts are not aware of the technologies being produced for their particular area of expertise, and technology firms are often unaware of the vast and specific challenges developing countries face.
Thus, it is critical to first identify specific, not general challenges in areas such as access to capital, business creation, countrywide connectivity, education and training, employment, environmental protection, government administration, health, housing, hunger, infrastructure, pollution, population growth, trade expansion, waste, water scarcity, and women’s empowerment. These are but a fraction of problems facing the developing world.
Earlier this month, the World Bank hosted a Smart Cities for All workshop in Washington, DC which convened experts from the United Nations, academia, government agencies, non-profits and industry. The purpose of the workshop was to share insights and experiences of equipping cities with the tools for intelligent growth. Additionally, the forum established a public-private partnership for collaboration in pursuit of shared goals for global sustainability. But what does it mean to be a “smart city”? Is this distinction only reserved for cities starting from scratch? Can an established city boost its IQ?
First, we must take a step back to reflect upon what it means to be a “smart city.” While there is no official definition, many have contributed to this debate. Industry leaders, such as Seimens and IBM, believe that stronger use of technology and data will enable government leaders to make better informed decisions. Whereas others, including the Sustainable Cities Blog’s very own Dan Hoornweg, consider the social aspects as a component of what it means to be a smart city. In his blog, “Smart Cities for Dummies,” published last November, Dan contends: “At its core a smart city is a welcoming, inclusive city, an open city. By being forthright with citizens, with clear accountability, integrity, and fair and honest measures of progress, cities get smarter.” Though I agree with both the data-driven and socially-conscious approaches, I’d like to propose my own definition of a smart city.