Principal investigator: Silvio da Rosa Paula
Article title: Impact of the Determinants of Public-Private Partnerships in Emerging Economies
Article authors: Rodrigo Nobre Fernandez, Ronald Otto Hillbrecht, Gabrielito Menezes and Felipe Garcia Ribeiro
Location of the intervention: Emerging economies
Sample size: 143 emerging countries
Sector: Economic Policy and Governance
Type of intervention: Identifying the determinants of Public-Private Partnerships (PPPs)
Primary variable of interest: Total investment in PPPs in millions of dollars as a percentage of GDP and number of PPP contracts (total and by sector).
Evaluation method: Panel data with fixed effect, Negative Binomial and Poisson distributions.
Evaluation Context
Investment in infrastructure is an essential factor for quality of life and socioeconomic development in countries. Faced with a scarcity of financial resources, since the late 1980s, developing countries have looked to private companies as an alternative capable of leveraging investments in infrastructure sectors and minimizing the existing gap between the deficiency in the provision of quality services and the growing demand for them.
Within the framework of contractual models, public-private partnerships (PPPs) are a type of contractual arrangement that allows private companies, subject to the institutional constraints of each country, to manage activities previously provided by the public sector. Generally speaking, PPP laws take different forms across countries, but one of the main characteristics of this contractual model is its long-term nature, where the public and private sectors appropriately share project risks, making the undertaking beneficial for both.
Given the frequent association of public-private partnership contracts with privatization, it is important to highlight the differences between the two types of contracts. Firstly, PPPs delegate the construction and execution of a public service to a private agent for a predetermined period without transferring ownership of the asset. Secondly, privatization refers to the sale of a public asset to the private sector, resulting in the company gaining total control over the administration, investment, and provision of the asset, without any return for the granting authority.
Methodology Details
The empirical strategy used by the researchers was that of panel data estimators. Their use allows for tracking countries over time, capturing their behavior over the years. When it comes to the number of contracts, the models used were the Negative Binomial and Poisson, considered standard for count data. In general terms, with the implementation of these methods, the researchers seek to identify the determining channels of PPPs in emerging countries, with variables of interest including total investment in millions of dollars as a percentage of GDP, the total number of PPP contracts, and the number of contracts per sector, such as energy, water and sanitation, telecommunications, and transport.
Intervention Details
The analysis focuses on 143 emerging countries, covering the period from 2005 to 2012. The data comes from the World Bank. Therefore, in order to identify the determinants of investment and the number of contracts in Public-Private Partnerships in these countries, potential determining channels widely used in the literature were selected for analysis. The possible determining channels and their descriptions are presented below.
Intervention Details
The analysis focuses on 143 emerging countries, covering the period from 2005 to 2012. The data comes from the World Bank. Therefore, in order to identify the determinants of investment and the number of contracts in Public-Private Partnerships in these countries, potential determining channels widely used in the literature were selected for analysis. The possible determining channels and their descriptions are presented below.
- Budgetary constraint: It indicates government spending as a percentage of gross domestic product (GDP) and the stock of external debt as a percentage of gross national income (GNI).
- Macroeconomic environment: This refers to inflation as measured by the GDP deflator; domestic credit to the private sector as a percentage of GDP; and international reserves in months of imports.
- Business environment: It is composed of economic openness [(exports + imports) /GDP], the number of companies created, and the time required to open a company.
- Political environment and institutional quality: This refers to the country's corruption index and regulatory quality.
- Demand for infrastructure: It indicates the size of the country's population.
- Legal system: It is determined by the time required to fulfill a contract and the rule of law.
Results
The results found for total investment in millions of dollars as a percentage of GDP in PPPs indicate that macroeconomic environment and legal system channels are important factors in determining private investment. Thus, a country's macroeconomic stability is important for the attractiveness of the private sector, coupled with legal security for both contracting parties, where a country with good institutions would be a significant characteristic in the time it takes to fulfill a contract.
Regarding the total number of PPP contracts, the government's budgetary constraints, the macroeconomic environment, the business environment, and the legal system stand out as preponderant factors in determining the number of projects in the public-private partnership modality. In this same perspective, when analyzing the number of contracts by sector, there is evidence for the energy sector that budgetary constraints such as debt stock and the legal system are decisive factors for this type of project.
Regarding the telecommunications sector, in addition to the macroeconomic environment and legal system, the business environment stands out, where the time it takes to open a company and the creation of new businesses are important in determining the number of telecommunications projects. Furthermore, concerning the results of the analysis of the transport sector, it is evident that countries with a stable macroeconomic environment, a good business environment, and a legal system—that is, with well-structured institutions that guarantee the fulfillment of contracts—and government budgetary constraints, are important factors in determining the number of transport-related projects.
Finally, the water and sanitation sector is analyzed, highlighting that, in addition to macroeconomic environment and legal system channels, emerging countries with a transparent and credible political environment attract private investment in the formulation of this type of project. In general terms, a favorable business environment, macroeconomic and political stability, coupled with an efficient legal system, are important channels in the formulation of public-private partnership contracts.
Lessons in Public Policy
Public-private partnerships (PPPs) are being used in several emerging countries as an option for governments to increase overall efficiency in infrastructure. According to the World Bank's global report on private sector participation in infrastructure, in 2019, investments in this type of project reached US$96,7 billion.
In Brazil, the motivation for implementing PPPs (Public-Private Partnerships) has been primarily due to the government's fiscal situation and its limitations in providing quality services to meet growing demands. Infrastructure projects are being developed in various sectors, such as highways, basic sanitation, energy, and telecommunications, with the aim of boosting economic growth and achieving sustainable development.
Thus, efficient partnerships between the government and the private sector, seeking an optimal allocation of risks, can be a good alternative to foster investment and provide quality services, increasing efficiency, social well-being, and economic development, being an important mechanism for... policymakers to circumvent the government's budgetary constraints.
ReferenceFERNANDEZ, Rodrigo Nobre et al. Impact of the determinants of public-private partnerships in emerging economies. Planning and Public Policies, no. 44, 2015.
