The current financing gap of developing countries is currently estimated at a staggering US$2.5 trillion each year. But Public Private Partnerships (PPP) could pose part of the solution, believes the Islamic Development Bank (IsDB).



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The introduction of the UN’s Sustainable Development Goals marked a new era for the international development community, raising the level of finance required from billions to that of trillions. Even the world’s strongest economies cannot resolve global development challenges alone. 



To meet this financing gap, innovative sources of finance must be tapped along with new types of development projects – ones that operate at the nexus of financial viability and development impact. The right enabling environment also must be created to make markets work for development &#8211; they need to be dynamic, inclusive and sustainable. 



“The biggest potential driver of short and long-term development is the private sector,” says President of the Islamic Development Bank, His Excellency Dr Bandar Hajjar, who is convening a coalition of internationally renowned experts, government officials and private investors today in Rabat, Morocco, for the 2nd annual PPP Forum: Shared Efforts for Shared Goals. 



Experts will discuss how to improve the legal and institutional environment of public-private partnerships, particularly on the African continent where there is growing appetite from investors in PPPs. 



Developing countries are facing huge budgetary constraints. Before the global financial crisis, between 2004-2008, the total budget balance of all the Islamic Development Bank’s member countries was in surplus of 3.8% of GDP on average. Between 2013-2017, however, this has turned into a deficit of 3.5% of GDP. 



“The IsDB’s ambition is for a future in which governments establish and enforce rules and regulations that enable all economic agents in the market to play a role in development,” Dr Hajjar says.



There are several success stories of IsDB financing for PPP projects across Africa – one being the expansion and rehabilitation of the Jorf Lasfar Port project for OCP in Morocco, for which the IsDB has approved US$150 million. 



The project was completed end of September 2017 and already total shipments from the port have almost doubled, jumping from 10 million tonnes to about 17.6 million tonnes, with the number of ships discharging from the port increasing from 571 to 686 vessels. A total of 200 jobs were also created by this project. 



The IsDB and other lenders under a PPP financing structure also helped to dramatically expand the capability of the port of Djibouti. The country, strategically located on one of the fastest-growing east–west international shipping routes, at the entrance to the Red Sea, is ideally placed to expand its role as a shipping hub.



Now, thanks to a new container port developed with PPP funding, Djibouti can handle more than twice as much container traffic as before, is able to host the latest generation of giant container ships and is in a position to establish itself as a gateway to the Common Market for eastern and southern Africa. 



This has strengthened Djibouti&#8217;s economy and fostered regional integration through the development of trade.



“PPP financing enables competitive advantage, higher quality and efficiency,” continues Dr Hajjar. 



“Importantly, PPP financing reduces the burden on state budgets to complete investment-intensive development and infrastructure projects, optimizing the distribution of risks between the two sectors.



“This PPP Forum is therefore more important than ever, and we look forward to promoting the dialogue on PPP in order to drive meaningful change as we look to achieve the Sustainable Development Goals.”



IsDB’s 2nd Annual PPP Forum: Shared Efforts for Shared Goals, is being held in Rabat on 28th February 2019 under the high patronage of His Highness King Mohammed VI of Morocco. 



-Find out more at: <a rel="noreferrer noopener" aria-label="https://ppp-forum.org/ (opens in a new tab)" href="https://ppp-forum.org/" target="_blank">https://ppp-forum.org/</a> 



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Public Private Partnerships Critical To Tackling The Financing Gap Of Developing Countries

Decisions made by major rating agencies come and go. The more they change, the more they stay the same. Standard &amp; Poor’s has been the latest credit bureau to cut South Africa some slack, in not cutting the sovereign to a non-investment grade. Similar leniency has been shown by Fitch and Moody’s over the past 12 months. In the following year, they may however not be that patient, demanding more tangible progress with reforming the labor market, political cohesion and overcoming the challenges that poorly managed state-owned enterprises (SOEs) pose to economic growth.
Admittedly, no one likes being told what to do. That applies to decision makers in the public sector as well as in the private sector. South Africa continues to flirt with the makings of a recession, where another slip on the credit rating ladder could open up the possibility of borrowing funds from the International Monetary Fund (IMF). While this conjures up images of a bailout, it may not necessarily be as bad as it sounds. Loans come with prescribed conditions to them. The biggest will be boosting GDP growth to a more respectable level, from the lethargic level of 1% it appears destined to grow by over the next few years. The détente that was brokered this year between the government and leaders in the private sector, to halt a further slide in the country’s rating, is significant. It shows the two sides being poles apart on many things, but that the success of the economy is not the preserve of only one side.
Public-private partnerships (PPP) have emerged as a credible tool in meeting infrastructural development challenges, by harnessing the strengths of the private sector and government. The private sector provides technical know-how, management and finance for any key infrastructure project. The public sector offers security for private sector investment and also guides the PPP process through a legal and regulatory framework. A special purpose vehicle is established by the private sector, which raises a combination of debt and equity to finance the project. This structure is particularly important for SOEs; the financier will look more at this structure than it will at the cash-strapped public entity.
This framework is internationally recognized and respected. It encompasses a spending program of more than $58 billion, stretching over the following three fiscal years. Much success has already been seen with Africa’s largest PPP project –the Gautrain Rapid Rail Link, which came in around $1.7 billion. Renewable energy projects have also been successful.
However, the Infrascope project, financed by the World Bank to investigate how prepared and willing 15 African countries were to implement key PPPs, found that the process had challenges. Projects can be difficult to execute, legislative and regulatory processes can be tricky, and a high level of financial skill, sectoral knowledge and familiarity with the different structures which PPPs are needed. International investors also observe that bids have a large element of non-price factors, such as the promotion of black economic empowerment, job creation, socio-economic development and industrialization. Foreign bidders say that these local factors are too demanding and play a larger role than they should. Local stakeholders, such as trade unions, are also skeptical of PPPs, mistaking them for privatization of government assets and wary of the job losses which could accompany such projects.
It is not enough that South Africa’s GDP is growing by less than 1%, nor is it enough that reforms in the labor market have been insufficient to dent a 27.1% unemployment rate. It is also not sustainable that around half of South Africa’s population receives some form of welfare and dependency benefits.
How long it takes to rebuild the economy is difficult to say. It will take at least as long as the 33 consecutive months at which the annualized rate at which the South African Reserve Bank’s leading indicator has contracted.
Amid all the uncertainty, the one mantra which remains steadfast is that politics leads economics.

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Public Private Partnerships Critical To Tackling The Financing Gap Of Developing Countries

An Uneasy Partnership That may be necessary