Devolution of PPP enabling environment institutions: The leadership cascade effect

I have seen several trends emerge from discussions I have had over the past year with PPP public sector practitioners about the ability of their government institutions to promote PPP best practices and enhance enabling environments:

• Great satisfaction with the existing implementing institutions that propagate a national enabling environment across all levels of government.
• Satisfaction with the implementing institution’s impact on enabling environments at the national level but concern with the capacity to implement best practices at the local government level.
• The capacity gap of national institutions to support the enabling environment at the local government level when national decision-making has been devolved.

Another trend that has been observed is the decentralization or devolution of PPP implementation authority to local (provincial and urban) governments by a national government. In many instances, this is not a direct result of decision-making directed specifically at PPP practices, but the result of governments giving more decision-making capabilities to local governments. The effect has been the inadvertent imposition of a PPP mandate on local governments that are poorly positioned to carry this out.

As a result, in some countries strong national institutions (i.e. a national PPP unit) have had their mandates curtailed, thereby disrupting the positive cascade impact they could have on leadership and decision-making influencing national PPP agendas. Countries that have devolved PPP decision making to local governments include South Africa and Kenya. The impact of these developments remains to be seen.

The Public-Private Infrastructure Advisory Facility (PPIAF), a multi-donor technical assistance facility that is financed by 15 multilateral and bilateral donors and housed within the World Bank Group, makes the following statement about enabling environments for PPPs:
 

“Worldwide experience has demonstrated that the successful implementation of a PPP program requires an enabling environment to be in place in order that PPP projects may be implemented effectively and with maximum benefit to the public sector.” 

PPIAF also identifies four principles, which it terms “enablers” that need to be considered by all government levels. They are:

• Promoting public investment commitment
• Having capable public and private sectors
• Ensuring effective risk management
• Creating favorable investor climates

These enablers require champions in the form of a strong national institution that will promote enabling environments that are credible.

PPIAF goes on to say that “in pursuing PPPs, the public sector is principally motivated by securing increased funding for highway investment (or any infrastructure project),  introducing private sector efficiencies and, to a lesser or greater extent, encouraging or accompanying a process of public sector reform.”

This statement captures the crux of the issue. In smaller national economies the question needs to be asked: Can local governments perform the mandate imposed upon them with their limited resources or should the national level institutions maintain a stronger mandate?

This is not an easy question to answer. 

A scenario where strong and capable national and local government proponents of PPP enabling environments have mandates that harmonize their approaches to implementing PPPs can only be viewed positively. 

In smaller national economies, this scenario is often not possible due to competing and limited resources. In these cases, it would make no sense to try and duplicate resources when a strong central institution could cascade information downwards to all levels of government that are implementing PPPs and promoting an enabling environment.

In larger national economies where PPP practice has devolved organically due to national capacity that has been built over time, autonomous decision making on PPP practice and legislation that supports PPP enabling environments might be beneficial as long as a national institution sets the standard that becomes national practice at all levels of government.

In small emerging PPP markets, the luxury does not often exist for governments to pursue autonomous PPP best practices—both at the national and local level—due to limited national resources and the capacity to develop harmonized and complementary enabling environments. 

It is my concern that the rush to decentralized PPP implementation and practices in national economies with limited resources will only harm perceptions that the private sector might have about PPP enabling environments. The loss of a positive cascade effect of information from a strong national institution might not be the best choice in the long run and could damage PPP practice at the local government level.

The original version of this blog appeared on David Baxter’s LinkedIn page.
 

Disclaimer: The content of this blog does not necessarily reflect the views of the World Bank Group, its Board of Executive Directors, staff or the governments it represents. The World Bank Group does not guarantee the accuracy of the data, findings, or analysis in this post.