Making PPPs work in fragile situations

I have been working in both Afghanistan and the Palestinian Territories for several years now, supporting both upstream enabling activities and working on specific public-private partnership (PPP) transactions. I recently traveled back to both places for our Public-Private Infrastructure Advisory Facility (PPIAF) to help design new interventions that will help develop private sector participation in infrastructure.
 
 

Supporting the development of private sector participation in infrastructure in fragile and conflict affected states is a strategic priority for PPIAF, where immediate and overwhelming infrastructure needs are apparent.
 
In that realm, PPIAF has long been supporting Afghanistan and the Palestinian Territories, among many other conflict impacted economies, and has achieved significant impact, particularly in the telecommunications sector in Afghanistan, and the solid waste sector in the West Bank. Increased access to infrastructure is crucial in fragile and conflict-affected states, and resulting services create opportunity and drive economic growth, thereby reducing the risk of resurgent conflict.
 
While both places face unique challenges, my experiences demonstrate some commonalities that could be applied to other economies with similar situations. Both Afghanistan and the Palestinian Territories have recently undergone political transition, and both have outlined plans to pursue private sector participation to accelerate access to infrastructure and drive economic growth. This comes in the context of growing fiscal constraints and reduced future donor budgetary support.  
 
Let’s look at the specific economic and political context of both Afghanistan and the Palestinian Territories to put things in perspective:
 
 

Afghanistan
The recent democratic transfer of political power in Afghanistan has brought in a national unity government that is whose goals include: commitment to stimulating economic growth, enhancing productivity and realizing self-reliance. Afghanistan faces an economic slowdown as a combination of the international military withdrawal, declining aid, political uncertainty, and a deteriorating security situation, all of which have contributed to a sharp decline in economic growth among other factors.
 
According to World Bank data, in 2014, growth in Afghanistan was estimated at only 1.5 percent, compared with an annual average of 9.4 percent over 2003-2012, while more than 36 percent of Afghans live below the poverty line. Building infrastructure to support economic growth and regional integration is a key priority for the new national unity government. The constrained fiscal situation and declining aid has led the government to pursue a PPP program in order to support the development and delivery of high-quality infrastructure services.
 
Palestinian Territories 
The West Bank and Gaza’s unique political, geographic and security context has had significant negative impacts on the provision of infrastructure services. In April 2014, an agreement between the Fatah and Hamas political parties led to the formation of a compromise unity government, with national elections to take place in due course. The population of the Palestinian Territories is growing at an estimated three percent per year, yet economic growth has slowed in recent years to only 1.5 percent in 2013.
 
The Palestinian Authority faces a weak fiscal situation due to falling growth and a reduction in donor support (which fell from US$1.8 billion in 2008 to US$0.8 billion in 2011). In its 2014-2016 National Development Plan, the Palestinian Authority recognized the need for significant improvements to the quality and affordability of infrastructure services, and acknowledged that its fiscal situation would require private sector participation to provide the necessary expertise and investment to supplement its public infrastructure budget.
 
Delivering PPPs in Afghanistan and the Palestinian Territories 
 
Three of the most critical components for PPP programs in any country are infrastructure planning, donor coordination and capacity. In Afghanistan and the Palestinian Territories, these components are even more important, as scarce resources need to be allocated and prioritized efficiently in a capacity-constrained environment to respond to massive infrastructure needs.
 
Infrastructure planning
While the infrastructure needs are vast in both places, neither of them has a robust public investment planning process to help prioritize public and private infrastructure investment. This leads to rather ad hoc infrastructure investment (by both governments and donors), and allows for neither efficient sector planning nor the filtering of projects suitable for private sector investment. This process creates challenges for the establishment of a successful PPP program, as pipeline development (a key element in the launch of a PPP program) is opportunistic rather than efficiently structured.
 
Enabling and encouraging PPPs in fragile and conflict-affected states therefore requires a broader analysis of the overall public investment planning process, of which PPPs is only a small part, in order to create the right conditions for systematized identification of PPP projects.
 

Donor coordination
Due to the ongoing fiscal constraints and risks involved in investing in both places, it is highly likely that PPP transactions, at least initially, will be reliant on donor support. This could be in the form of capital subsidies, guarantees or other mechanisms to enable private sector appetite.
 
With this in mind, PPIAF has an important coordination role to play in order to engage donors in the design and implementation of program activities. This process is intended to ensure long-term donor commitment and buy-in to PPP programs in both countries, as well as to encourage donor support to specific projects identified under the pipeline screening exercises.
 
In addition to increasing government capacity and understanding of PPPs, PPIAF also needs to support a mindset change among donors who are more used to one-off commitments to specific assets than longer-term support for infrastructure services.
 
Capacity
In Afghanistan, the Ministry of Finance established its PPP Unit to serve as the coordinating body and central champion for PPPs. In the West Bank and Gaza, the PPP program currently falls under the remit of the Deputy Prime Minister’s Office for Economic Affairs (where the PPIAF activity will seek to define a long-term institutional structure).
 
There is significant commitment in both countries to establish long-term and sustainable PPP programs, but there is recognition that they are only at the start of the process. Due to the lack of significant PPP experience in both countries, capacity building and training to build institutional and individual capacity will be required to enable the identification, development and implementation of PPP projects.  
 
In both places, many of the staff working on PPPs are donor-hired and funded consultants (with contracts linked to donor funding cycles). However, in order to ensure long-term benefits, capacity building processes should seek to identify and support talented PPP champions from within the civil service.
 
PPIAF is continuing to support the development of PPP programs in Afghanistan and the Palestinian Territories. Despite the challenging environments, there is strong government commitment to improving the delivery of infrastructure services by leveraging the private sector. Working with committed counterparts is an enriching experience, and I look forward to working in Afghanistan and the Palestinian Territories for many years to come.