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The Rising Role of Public Private Partnerships in Asian Development

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Editor’s Note: The following is a guest post on the growth of public private partnerships by finance writer Diana Morton. If you wish to contribute to The Asianist, please email pprashanth711@gmail.com. 

Public Private Partnerships (PPPs) have long been a method of completing business ventures in the developed Western world. Many of the world’s largest and most challenging construction projects, such as the $3.5 billion Victorian desalination plant in Sydney and the Hudson/Bergen Light Rail in New Jersey, USA, have been made possible by the respective countries’ government teaming up with private sector companies in order to fund and operate the ventures.

In Asia, as many of the continent’s main business hubs continue to grow at an exponential rate, the PPP method is becoming an increasingly effective means to an end. Cities such as Singapore are certainly no strangers to PPPs; in 1994, the government teamed with Singapore conglomerate, Keppel, which formed a private consortium of companies, to invest in the Suzhou Industrial Park in China.  The same group of companies has since been investing in a wide range of public development projects; more recently in 2007, it played a large part in the construction of the Tianjin Eco-City project. However, until recently, the majority of investment and funding in Asian countries has come from their governments.

Private investment

Recent figures released by the Asian Development Bank (ADB) indicate that investment from private companies is now on the rise. This could well be due, in part, to the challenges faced by companies in Western countries; as their economies slow, they are now looking to invest in the development and infrastructure of Asian countries. According to the ADB, as much as 40 per cent of  global infrastructure spending will take place in Asia. With this global figure set to reach USD $40 trillion within the next 20 years, this percentage represents a huge turnaround in the way Asian countries will develop compared with their Western counterparts. This level of investment has only been made possible by the partnership of private companies with governments.

Gaining traction

Wolfgang Schiefer, Chief of Regional Partnerships at the International Labor Organization (ILO), recently said that PPPs were being increasingly used by his organization and were gaining traction in aiding international development. “Public-private partnerships (PPP) have the potential to increase the visibility and advocacy of the ILO,” he said. “They also provide a channel for influencing public and private sector investment, policies, and practices, and so promoting decent work more effectively.”

As countries become more developed, it becomes clearer that governments do not have the necessary expertise to handle large infrastructure projects single-handedly. This is why developing Asian nations are seeing an increase in the number of projects that are operated using a PPP method. The government recognizes that, in order to build the most state-of-the-art and up-to-date buildings, it is necessary to call on the help of private companies, which possess the required levels of expertise to put their projects at the forefront of technology. “A strong PPP recognizes that the public and private sectors each have certain advantages and optimizes the allocation of tasks, obligations and risks to play to these particular strengths,” says Schiefer. “For example, the public sector can offer social responsibility, environmental awareness and local knowledge, while the private sector can offer expertise in commerce, innovation, efficiency, management and operations.”

More complex

However, as levels of development increase, so does the complexity of PPPs. Asia is beginning to see a new breed of PPPs for complex projects such as medical centers and hospitals. Simon Brooker, Director of professional services company, KPMG, says that this change from using discrete PPPs to using those with much more complex infrastructures is due to one main factor. This factor is due to the recognition of the need to scale back government involvement in the service delivery of such projects, instead handing the responsibility to private sector companies. “This is about creating and expanding commercial markets,” he said. “In other cases, economic, funding and liquidity constraints drive interest.”

Widespread benefit

PPPs have the potential to provide the highest quality infrastructures, as they provide the benefit of private sector specialist knowledge along with the security of government backing. This method, in turn, presents the opportunity of creating a more stable nation, especially since 31% of the population in Asian countries currently resides in urban regions. This figure is set to increase to more than 50% by 2050. In turn, creating stable cities and infrastructures will help the continent to deal with the issue of housing finance for low and mid-income families. While promoting the adoption of PPPs, the ADB is also putting into place initiatives for improving access to home mortgage financing. This is in response to the needs of the private sector in developing countries within the Asian continent.

Experts are now calling on Asian governments to draw up long-term national development and infrastructure plans that will encourage increased private sector involvement. This would include putting active measures in place to lower the risk of investment perceived by the private sector. If adoption of PPPs continues to rise, Asia could be on track to ensuring long term stability and prosperity.

Diana Morton is a 29 year old finance writer from England who specializes in personal finance articles for a range of magazines. She enjoys traveling and finding ways to save money on hotels, cruises and exchanging money. Her research was put to good use when she helped to arrange her brother’s marriage in Bali.

Written by Prashanth Parameswaran

August 17, 2012 at 12:09 am

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