Public-Private Partnership: A catalyst for Economic Growth
Public Private Partnerships (PPPs) can be a significant force in driving economic growth and development in any country. PPPs have proven an effective means of bridging the gaps between demand and resources, quality and accessibility, and risk and benefit.
So let us first know what Public Private Partnership is. According to Wikipedia, it is a long- term arrangement between a government and private sector institutions involving private capital financing government projects and services up-front and then drawing revenues
from taxpayers and/or users throughout the PPP contract.
How does this model work? Typically, this type of partnership has contract periods of 20 to 30 years or longer. Financing comes partly from the private sector but requires payments from the public sector and/or users over the project’s lifetime.
The private partner participates in designing, completing, implementing, and funding the project, while the public partner focuses on defining and monitoring compliance with the objectives. Risks are distributed between the public and private partners through a process of negotiation, ideally though not always according to the ability of each to assess, control, and cope with them.
The PPP model acts as a catalyst in the economic growth of a country. The ability to share risk with the private sector, tap into external financial resources, and profit from private- sector investments and intellectual capital gives public-sector policymakers greater flexibility in allocating both human and financial resources. Emerging and rapidly growing economies stand to benefit from the economic development that is generated by infrastructure PPPs.
PPPs can be a tool to get more quality infrastructure services to more people. When designed well and implemented in a balanced regulatory environment, PPPs can bring greater efficiency and sustainability to the provision of public services such as energy, transport, telecommunications, water, healthcare, and education. PPPs can also allow for better allocation of risk between public and private entities.
Also, not every project is suitable to become PPP or we can say it will be inappropriate for the project. Policymakers must thoroughly evaluate before launching a PPP project. This means policymakers must craft a strategy for infrastructure development and then ensure their actions—governed by established policies—can sustain the strategic goals. Before a PPP is undertaken, a PPP-friendly environment must exist to attract private investors, encourage public support, and ensure long-term project success.
The bottom line is that there is a net economic loss to the extent that public officials make resource decisions for PPPs. While public officials may be as intelligent, capable and well- meaning as their private-sector management counterparts, the impossibility of social calculation renders political decisions ineffective.
Even if the PPP is well-run relative to other government programs, it still diverts resources from purely private market-based decisions that are guided toward their most efficiently productive ends. At the same time, PPPs allow for the construction of public works that may
not be built by private enterprises on their own. They incentivize the market to produce things that benefit society, even if there may be some economic cost at the outset.
-By Akriti Kumari, Senior Research Analyst, VeKommunicate