‘Public-private partnerships’ is a frequently used term when it comes to large-scale infrastructure projects. Simply put, this arrangement allows private companies to make infrastructure investments that governments would ordinarily be responsible for such as hospitals, roads and bridges. Though public-private partnerships serve a useful role in infrastructure creation, they have to be pursued with caution in least-developed countries.
The failure or inability of government to provide adequate infrastructure propelled the creation of public-private partnerships. Prior to their emergence, privatization was the method of choice, especially in developing countries. This approach allows the private sector to assume full ownership of infrastructure projects thereby taking away public control. Consequently, privatization often fueled corruption and exacerbated wealth gaps within communities. Privatization in Latin America also tended to focus more on electricity and telecommunications and not so much on transportation or on social and economic programs. Thus, only certain sectors benefited from this arrangement. Public-private partnerships exist to address these shortcomings while still keeping government accountable.
In order for them to work well, public-private partnerships require a solid institutional structure. Companies want to know, through supportive legislation and political commitment, that their investments will be protected. Guaranteeing this regulatory environment is one of the biggest challenges to the success of public-private partnerships in communities where weakened governments are the norm.
Consider Chile, which has a reputation for having the highest rate of infrastructure investments in Latin America. The country has spent $11.3 billion in infrastructure spending since 1991 and most of that was through public-private partnerships. In the wake of its February 2010 earthquake, where Chile suffered $15-30 billion in damages, the Ministry of Public Works embarked on a four-year $15 billion infrastructure plan that year with an array of public-private partnerships to execute it. Chile is unique in that it has a strong legal framework, the appropriate political climate and a strong economy to sustain their public-private partnerships. The same cannot be said for countries like Honduras, Guatemala or Haiti.
As a result, public-private partnerships have come under scrutiny for being less about increasing productivity and more about bypassing government controls when they are employed in these least-developed countries. Widely accepted guidelines have to be developed to determine how private companies ought to engage with countries like these. Many times, it is the private entity that approaches the government to form a public-private partnership as opposed to the government soliciting this assistance. In struggling countries, this diminishes transparency, allows for the formation of monopolies and undermines governing institutions when they really need to be strengthened. Public-private partnerships have to be mindful to maximize what is in the public’s best interests while also fostering a climate that enables private gains.
Solid infrastructure investments are certainly necessary for economic growth. Despite this, infrastructure needs often exceed the capacity of governments. As a strategy, public-private partnerships have showed great promise in countries that have the legal and political support to reinforce them. For countries that are unable to ensure such safeguards, more consideration has to given as to whether public-private partnerships are a suitable approach.
As originally featured in the Urban Times.
About The Author: Vanessa L.
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