[AS PREPARED FOR DELIVERY]
The Infrastructure Deficit and the Importance of PPP Capacity Building
Ladies and Gentlemen,
I am delighted to be able to share with you some of my thoughts on the challenge posed by the infrastructure deficit and how building partnerships between the public and private sectors offers a way to address this problem.
Infrastructure development whether in energy, water, ICT, and transport is a prerequisite for countries´ economic and social development. Inadequate infrastructure and poor transportation remain one of the main causes of low competitiveness, trade and high transport costs for many developing countries. This is particularly the case for the Least Developed Countries (LDCs), a group which the UN has identified as the poorest and most vulnerable countries. Around one third of LDCs are also Landlocked Developing Countries (LLDCs). In Africa, for example, freight expenses can absorb as much as 40% of the value of the traded goods from land-locked countries, compared with 4% on average in the industrialized world. This contributes to eroding the trade competitiveness and the benefits that could be derived from access to global markets.
To address the increasing demand for efficient and cost-effective infrastructure services and infrastructure finance, developing countries have increasingly turned to the private sector. Public-Private Partnerships (PPPs) have emerged as one way to use public money to leverage greater private investment and most importantly allow the access to specialized skills, innovations, and new technologies associated with infrastructure development, operation and maintenance. The private sector can help (literally) bridge the gap in financing for infrastructure, which governments, on their own, cannot meet.
Demand for infrastructure is set to grow significantly in the years to come, driven in particular by the fast pace of world trade and economic growth in addition to expanding world population. The world economy is expected to grow on average by close to 3% per year to 2030, with developing countries´ performance surpassing that of the developed countries (4% per year compared with 2.4%).
Other factors are also expected to drive and re-shape the demand for infrastructure including, for example, technological progress, greater regional and global integration, and the impact of emerging global challenges, such as climate change. Indeed, climate change, in particular, will impose an unprecedented stress on infrastructure, and investment in new infrastructure will be required to better withstand the effects of various climatic factors, such as sea level rises and extreme weather events.
It is important to emphasize the magnitude of the infrastructure deficit in developing countries. Indeed, it constitutes one of the biggest challenges in their quest for economic prosperity and development. The World Bank (2008) estimates that 7 to 9 % of the gross domestic product (GDP) of developing countries would need to be invested annually in infrastructure building and maintenance in order to meet economic growth and poverty reduction targets. These numbers are clearly well above the current investment rates ranging from between 3 and 4 %. In sub-Saharan Africa, for instance, the shortfall in infrastructure financing is estimated at over $20 billion per year. Similar gaps exist in Asia, Latin America and the Caribbean. Combined with most governments´ limited financial capacity, these pressures drive the need to mobilize new sources of finance for infrastructure development.
Developing countries recognize the growing need to adopt PPP approaches for infrastructure development. If structured properly, PPPs can help mobilize additional resources and new expertise from the private sector at the local, regional, and also international levels. However, the success of PPPs depends on the ability of the government to present viable and sustainable projects. At the same time, it must also ensure that a conducive enabling environment, in terms, for example, of legal and policy frameworks, can sustain such partnerships.
Indeed, public-private partnerships do not happen in isolation. Public-private investment projects often are capital intensive and complex. A high-quality institutional and regulatory framework is therefore crucial for fostering the interaction between public and private investment, and for achieving the attendant development goals. Equally important is the identification and removal of existing bottlenecks for such cooperation, such as red tape and other administrative obstacles. A well structured regulatory and institutional framework is therefore crucial for fostering the successful interaction between public and private sectors.
PPPs can be a challenging and complex area, in particular for infrastructure development. Nevertheless, we strongly believe that collaboration between governments and private stakeholders to strengthen governance, build capacity, formulate policies to create trust, share risks and responsibilities, and attract private participation can contribute to significantly to improving the chances of success.
I mentioned mobilizing the private sector at the international level. In 2008, UNCTAD´s annual World Investment Report called for UN action to play a more active role in helping developing country governments to develop PPPs, evaluate management contracts and review agreements, so as to facilitate the increased use of PPPs. Furthermore, UNCTAD´s expert meeting on transport and trade facilitation in 2009 emphasized the pivotal role of PPPs in addressing infrastructure.
The UNECE Centre of Excellence is therefore both a timely and innovative approach to addressing some of the key issues I just mentioned for PPPs in infrastructure development. The Centre will provide a neutral brokerage role and single platform to match necessary public and private sector expertise, in collaboration with national, regional, and multilateral development partners.
Ladies and gentlemen,
We should seize the growing momentum for engaging private partners in public investment projects in infrastructure, and find ways of providing the necessary support to developing countries to take advantage of PPPs. In the spirit of delivering as one, UNCTAD and UNECE will be pooling efforts to assist developing and transition economies to establish conducive environments for PPP.
We are encouraged by the latest meeting of the G20, in February this year, where members reiterated their support to infrastructure development through the creation of a High Level Panel for Infrastructure Investment. Such a panel aims to identify public, semi-public, private and multilateral development bank finance to address the infrastructure deficit. Building the capacity of governments to manage the complexity of diverse sources of financing will be critical for the success of future public-private partnerships in infrastructure development.
Such projects suck in private investment themselves and can also be a stimulus for further private investment which is attracted by better infrastructure and greater demand. In this way, leveraged public investment can play an instrumental role in expanding productive capacities, which contributes to raising labour productivity, especially in the least developed countries (LDCs). Finding ways to propagate partnerships between public and private investment and to increase the private component of public investment projects will therefore be key to managing the complexity of development challenges facing many countries.