GRM 2010 GRM 2011

Abstract Details

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Title of Paper:
Implications of Public Private Partnership in Infrastructure Development for Economic Diversification
Paper Proposal Text :
The availability of infrastructure services is crucial in enabling economic activities. In general, the provision of such services is the responsibility of the government for such services has natural monopoly features that may cause market failure if privately provided. However, past experience indicates that government intervention to ensure the delivery of infrastructure services has generally failed, which has increased the significance of Public Private Partnership (PPP) in infrastructure services.

In theory, PPP is said to promote the efficiency and effectiveness of infrastructure services since private entities has commercial principles and set performance targets to monitor their achievements, as well as financial and managerial autonomy and clear accountability to both customers and providers of capital. PPP is also said to have benefits such as the transfer of technical and management skills of the private company to the public entity. Therefore, there is a widespread assumption that the implementation of PPP achieves improved infrastructure service delivery, which shall result in economic development. However, existing literature regarding such outcomes of PPP reveals mixed results.

In light of the above, this paper examines the aforementioned assumption and highlights various aspects of the relationship between PPP in infrastructure development and economic diversification, by reviewing economic and social performance of CGG countries. It also examines the extent to which increased private sector participation, in particular from non-domestic countries (i.e. foreign direct investment), has diversified industries related to the infrastructure sector. If PPPs are to meet their stated objectives, such economic diversification should be achieved.

This paper shall then point out the features that enable PPPs to achieve economic diversification: (i) regulatory rules and mechanisms and/or an independent regulator to monitor the performance of private companies and (ii) enforce penalties for breach of the PPP contract are crucial so that the PPP achieves its targeted objectives.

These shall be pointed out by drawing experiences of regulation for the implementation of PPPs, thereby explaining the fact that the increased role of the private sector in infrastructure service delivery has led to the changing role of governments from directly managing the service to indirectly managing the service, which is regulation. Furthermore, the paper then explains that the institution in charge of carrying out regulation also has an important role to in recommending changes and adapting the way in which the regulatory framework is implemented.

Thus it can be said that PPP has increased the role of both the private sector in infrastructure service delivery and the role of the government in carrying out regulation, which implies the importance of governments’ ability to create the institutional setting for the successful implementation of PPP: competition for and in the market. Competition for the market implies organizing bidding processes and competition in the market aims to establish and enforce penalties in the case of breach of PPP contract.

This paper concludes that for the successful implementation of PPP the setting of regulatory rules and mechanisms is essential for it creates a positive business environment and enables economic diversification. Such establishment shall depend on the ability of governments to monitor performance as well as enforce penalties to the private entity when the targeted PPP objectives are not achieved. However, it can be pointed out that the challenge is that governments lack the ability to carry out such regulation since this is a new role for governments in developing countries.