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PPI and the poorest: New private participation in infrastructure results highlight critical role of MDBs in IDA countries

Clive Harris's picture
During this week’s Financing for Development conference— sponsored by the United Nations in Addis Ababa, Ethiopia — ongoing discussions have focused on how private sector finance and expertise can be leveraged to help meet the UN’s Sustainable Development Goals. My take on that important conversation has been informed by some of the newest numbers available on trends in private participation in infrastructure in the poorest countries. Today’s update to the PPI Database, which highlights the role of multilateral development banks (MDBs) in the 77 IDA nations, introduces an important perspective to the ongoing debate over how to structure development financing for the best — and most sustainable — outcomes.
 
First, the numbers
The newest PPI Database results show that investment commitments to infrastructure projects with private participation investment in IDA countries from 2009 to 2014 totaled US$72.8 billion. This is significant because it accounts for just seven percent of the total recorded over this period for all emerging markets and developing economies covered in the database. This is not that surprising, but does show that we have a long way to go.
 
The number of projects with private participation in IDA countries is also only 10 percent of the total — a little better, and indicating that, unsurprisingly, projects are smaller on average in IDA countries. (For more information on IDA countries and detailed information on the IDA’s mission, please see: http://www.worldbank.org/ida/what-is-ida.html.)
 
But what does it mean?
Examining these figures in terms of sector activity reveals some especially useful facts for development initiatives — both those underway and those still in the incubation phase. Activity in IDA countries is heavily focused on telecommunications; even energy projects, which remain well represented, take a back seat to telecom. Fully 57 percent of investment commitments in IDA countries were in telecommunications and 31 percent in energy, compared to 32 percent and 41 percent respectively in other (non-IDA) countries. In contrast, only 12 percent of investment in IDA countries was in transport, compared to 25 percent in other countries. As we’ve seen before, telecommunications is the most commercially viable sector.  IDA countries specifically are facing greater difficulties in attracting projects in energy, transport and water.

Sharing PPP experiences across borders

David Lawrence's picture
How valuable are lessons of experience in PPPs from other countries? Legislative and regulatory environments differ, as do market conditions and the overall investment climate. So replicating a successful PPP in another country isn’t a simple as following the same steps or using similar contract or tender documents.
 
But that doesn’t mean lessons cannot be transferred. Even if conditions vary, the underlying principles of PPPs remain the same regardless of where it is executed. For example, a PPP is always a long-term contractual agreement between a government entity and a private company; it must be financially sound if it is to work; and risks must be identified, mitigated and allocated effectively. The details of how these principles are applied will vary depending on the regulatory and market conditions of each country. But the examples remain valid nonetheless.
 
In Ukraine, PPPs have been slow to catch on, initially because the business climate was so weak. The country’s neighbors were all more successful at implementing PPPs: Poland has 65 PPP projects underway according to the Ministry of Economy’s PPP database, and Moldova’s first PPP established a radiology and diagnostic imaging center. But none of Ukraine’s neighbors have done as well with PPPs as its Black Sea neighbor, Turkey.
 
Turkey is a regional PPP powerhouse. The 2014 PPI Global Update, which provides information on private infrastructure investment in emerging markets, puts Turkey in second place globally for the second year in a row with US$12.5 billion. In 2014 alone, 17 new projects were launched in mainly in power and transport. Not surprisingly, Ukrainian officials have been looking with great interest to Turkey’s success.