PPPs future of Asia-Pacific infrastructure development — ADB

The North Luzon Expressway in the Philippines was rehabilitated and expanded with the help of funding from the Asian Development Bank. The success of the project makes it a model for public-private partnership. Photo by: ADB

Famous Spanish painter Pablo Picasso once said that “action is the foundational key to all success” — a statement that perfectly portrays not just art but also the field of international development, where words (policies and promises) have usually overpowered action (efforts and results).

This is something the Asian Development Bank is keen on moving away from by having everyone — particularly the private sector — involved in Asia-Pacific’s development through more partnerships and collaboration. One example is the public-private partnership scheme.

ADB President Takehiko Nakao believes PPPs are “essential” not only in providing the region with much-needed capital but also in instituting knowledge-sharing processes from the private sector to the communities, and vice versa.

“A strong private sector is essential for development. It can fill large investment gaps, create jobs and reduce poverty,” Nakao said on Friday in his opening address at the bank’s annual meeting in Astana, Kazakhstan. “In this regard, we will expand our support for public-private partnerships … [to] help mobilize more private sector investment and improve the delivery of public services.”

One of the biggest development challenges that ADB is facing today is Asia-Pacific’s huge demand for investment in infrastructure development, almost $800 billion annually for the next ten years — which cannot be addressed by either the public or the private sector on its own, according to a senior bank official.

“We need collaboration between private and public players to make things work, and to bring critical services to the community,” said Michael Barrow, ADB deputy director general for private sector operations.

PPPs and other forms of partnerships are one of the key focus areas in ADB’s long-term “Strategy 2020,” as well as one of the main buzz topics at the annual meeting.

Next steps

Aside from additional finance, PPPs can bridge development gaps in terms of knowledge due to the private sectors’ technical know-how, by making these initiatives and projects more effective and cutting-edge, as well as increase accountability.

In one of the seminars in Astana, panelists agreed that this form of collaboration can also play a crucial role in helping countries with previously centralized economies like Myanmar to transition to private-sector oriented free market systems.

The Manila-based institution, however, clarified that adopting the PPP scheme is not just a simple shoutout. Several policy decisions should be implemented for it to become successful including tax incentives and ease of business processes, among others.

“To foster strong PPPs, they need to provide incentives and the right climate for private investments,” ADB explained. “Asian economies need to ensure that PPP projects are developed and delivered in professional, informed ways.”

This risk was underlined by Woochong Um, the bank’s sustainable development deputy director general, when he said that PPPs “can be a useful solution” although “sometimes it’s not” due to the inconsistent results in various cases for the past couple of years.

ADB will be expected to encourage and advise several developing member countries to gradually craft and implement PPP-friendly policies to pave the way for more private sector — local and foreign — participation in development projects in the region.

Pros and cons

Some of the concerns raised in engaging the private sector in development work include a tug-of-war of interests between people and profit and ethical considerations in doing business, among others.

For instance, several months ago a Japanese infrastructure firm was involved in a bribery and corruption scandal to win development contracts in Vietnam and Indonesia.

These are the issues that need to be addressed looking ahead, not just on the part of the private sector but also in terms of monitoring and cross-checking from the multilateral lending entities like the bank.

“ADB should further increase its institutional efficiency and effectiveness. Instead of taking a business as usual attitude, we should be more innovative by reforming our business processes and by revisiting the risk return profile of our private sector operations,” Nakao noted in his speech.

When asked by Devex in February if there’s any development area the private sector should not be involved, U.S. Agency for International Development Administrator Rajiv Shah said there’s none. But, as stated above, getting the private sector involved is not always a happy story. So what are the risks?

According to the World Bank, costs in bidding out and implementing PPP projects may actually be higher than traditional government procurement processes, and there are sometimes added costs attached to the agreement at hand.

“While private sector can make it easier to get finance, finance can only be available where the operating cash flows of the project company are expected to provide a return on investment,” the Washington, D.C.-based institution explained in a recent study.

This also links to the idea that these private firms may have a very different view of their objectives than the aid agencies. The World Bank said that “some projects may be more politically or socially challenging to introduce or implement” and that they will do what they are told to do and “no more than that” — which do not always bode well in the objective of addressing humanitarian concerns.

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See more:

How to build an effective road safety PPP: Lessons learned from Nigeria
Why ADB is providing more support to PPPs in the Philippines
Public-private partnerships: Spurring private sector involvement in development

About the author

  • Lean Alfred Santos

    Lean Alfred Santos is a former Devex development reporter focusing on the development community in Asia-Pacific, including major players such as the Asian Development Bank and the Asian Infrastructure Investment Bank. He previously covered Philippine and international business and economic news, sports and politics.