Public-private partnerships: Spurring private sector involvement in development

For decades, public-private partnerships have been the backbone of public infrastructure, a favored method for financing, constructing and maintaining everything from roads and bridges to airports and hydroelectric projects.

In today’s changing development environment, PPPs are increasingly viewed as an agile growth mechanism that can be effective in combating poverty. Applied successfully in education, health care, renewable energy and other areas, PPPs have shown promise as a vehicle for private sector involvement, especially when other sources of capital are scarce. To learn more, SNV had conversations with experts from the private, public and NGO sectors, gaining insights into the current state of opinion on PPPs, the role of the private sector, and the emerging development-financing landscape.

Participants included Wendy Hawkins, executive director of the Intel Foundation; Tara Acharya, PepsiCo’s senior director of global health and agriculture policy; Neil Ghosh, executive director of SNV USA; and Marcel Beukeboom, head of food security and financial sector at the Dutch Ministry of Foreign Affairs.

What is the place of the PPP in the current development landscape?

Ghosh: The PPP is an innovative tool to address a lack of dynamism in the traditional delivery of public services. To fund this, there is a renewed effort to get help from the private sector, in order to improve efficiency. But on another level, the concept of growth potential is resonating in the consciousness of developing countries. This is where the PPP can be perceived as a boost to the economy.

What are the main drivers of private sector participation in PPPs?

Acharya: Until recent times, I believe the main driver has been reputation enhancement. A company supports an organization that works towards positive social impact — clean water, education, shelter are some high-priority issue areas. The objective is for the company to be seen as one that cares about the issue, but is not directly involved in delivering impact.

This has changed in recent years because there is now an expectation that companies will conduct their business in a socially responsible manner, which goes beyond “license to operate” to the creation of “shared value” or “performance with purpose” — business growth coupled with positive social impact. Today, I believe some companies are seeking public-private partnerships that truly create value for the company, for the partner and for society.

Hawkins: From Intel’s perspective, the primary driver is effectiveness. In order to achieve our goals in education, it is necessary to work through the government entities that control the system. We also have an interest in building positive relations with governments and our PPP efforts give us that opportunity. Intel and the Intel Foundation continue to see such collaboration as key to achieving the kinds of systemic change we seek to support.

What factors might suppress participation?

Acharya: Perceived lack of direct benefit to business operations. PPPs require substantial investment – financial, human resources and time. A clear articulation of why a company should invest in PPPs is critical. Increasingly, companies want to see measurable positive impact not just for communities where they work, but also for their businesses.

Hawkins: Working with governments can be slow and cumbersome, involving many constraints and regulations. Governments are rarely nimble. In some cases and some places, they can also be corrupt, lack transparency and make it very difficult for a company to avoid FCPA [Foreign Corrupt Practices Act] violations.

Ghosh: Short-term ambition and a lack of clarity on long-term return on investment. Most PPPs are still managed — ably and passionately — by the corporate social responsibility units. The business units are not involved, and become road-blocks. Yet PPPs are good business — taken together, the 3.7 billion people at the base of the pyramid represent $2.3 trillion in spending power. There needs to be an evolution within companies, such that the business unit realizes that a PPP is not just a feel-good initiative, but a profitable business opportunity.

How must the public sector evolve to accommodate a greater private sector role in development?

Beukeboom: The private sector can be a driver for development, but an economy cannot make that transition from one day to the next. You have countries where you need a lot of auxiliary or enabling programs, you have to build a government that has institutions like customs, tax offices, everything that business looks for when seeking a risk-free and safe environment. In a very fragile state, almost 100 percent of your efforts will be toward [enabling programs]. In a nation that has made a transition already, 20 percent of your efforts can go to enabling programs and 80 percent to stimulating trade and investment.

Acharya: Public sector organizations must recognize the role that the private sector can play. A private sector company should not be perceived merely as a funder, but as an operational partner with complementary expertise that can ensure the achievement of common goals. Furthermore, the diversity of experience in companies goes beyond just manufacturing or distribution.

What kinds of conversations have to take place before a company is assured that a partnership can work?

Acharya: Common goals and objectives of the partnership should be discussed and agreed upon in principle. Expectations regarding resources, intellectual property and communications must be clarified. It should be emphasized that the role of [the private-sector actor] is not that of an arms-length funder, but a true operational partner.

What mechanisms are available to catalyze private sector involvement?

Beukeboom: There are many innovative ways of financing development in practice already. The most innovative I know is called The Currency Exchange, which the Dutch government helped to set up. When a Western company invests in a developing nation in its own currency, and the local company that it supports earns money in the local currency, and there is inflation over time, the original loan secured in dollars or euros becomes much higher in the local currency. TCX mitigates those currency risks. This shows that it’s possible with new ways of thinking and new financial instruments to use private investments in a different way.

How has the global financial crisis opened new opportunities for private-sector actors?

Hawkins: Many governments are more eager for partnerships that help them accomplish goals important to the government and its citizens, filling gaps left by the financial crisis.

Acharya: I believe the financial crisis coupled with geopolitical instability and commodity price volatility has created an opportunity for partnerships that could help the private sector. In particular, these PPPs offer the private sector a reduced risk way to establish diversity in supply chains.

What is the role of NGOs in PPPs?

Ghosh: International development organizations, in partnership with foundations and bilateral entities, have an important role to play in addressing the technical assistance gaps in PPPs. In addition, NGOs can provide for solid governance, make policy recommendations conducive to sustainability, identify opportunities, broker relationships between sectors and stakeholders, and develop capacity. Research, implementation and optimization are other possibilities.

Although many PPPs have been driven by corporate social responsibility, today’s model focuses more on inclusive business — strategies for national and multinational companies to bring local producers and providers into their production and marketing value chains. This model, which seeks to solidify governance by providing the legal frameworks that lend stability, fairness and transparency to enterprise, is a key area of engagement for the nonprofit sector.

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