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Understanding PPPs

This is Part One of a three-part series entitled ‘PPPs Explained’ by Griffin Olmstead, Summer Intern at the firm of ShawbellConsulting

I. Why Public Private Partnerships (PPPs)?

The Oxford English Dictionary defines economics as “The branch of knowledge concerned with the production, consumption, and distribution of wealth”. Economic policy uses this knowledge in an attempt to design systems of wealth creation.

Thus, we might say that the goal of democratic economic policy is to create optimal systems for the generation and distribution of wealth among the public.

This has three important implications for the way we understand economic development.

Firstly, “development” signifies the progressive improvement of a system to meet the particular needs of a society.

As different people have different interests, different countries and regions will craft different development goals and strategies.

Secondly, successful policy requires a way to tell policymakers which goals they should pursue.

For instance, voting and electoral campaigns are central to establishing the aggregate needs and desires of the people. Active political participation, therefore, is essential to directing fair economic development.

Thirdly, for development to satisfy the needs of the people, public policymakers must have the capacity to implement the people’s wishes.

Therefore, it is essential that public officials possess knowledge of development theory and practice.

All of these conditions can be advanced by the development of a robust administrative framework and capacity for managing PPPs.

Mobilisation of skills and capital

A PPP is a way for governments to mobilise skills and capital from the private sector to provide public goods and services.

In particular, the government offers to provide some form of support to a private party (such as land or revenue rights), which, in turn, agrees to develop and supply infrastructure or services for a set period of time.

This could be as simple as partnering with a waste disposal company to collect garbage, or as complicated as enlisting experts help to design, construct, and operate a major highway.

PPP projects transfer significant risk and expense to the private sector.

The private partner only gets paid, and only recoups its investment, if the service it provides meets contractual standards and expected project outcomes.

The private party thus adopts a significant share of the project risk (e.g., the risk of having to fix an expensive mechanical failure) and has a vested stake in fixing problems and providing quality service.

Particular outcomes

Further, while simple outsourcing typically demands a particular activity of the private party (e.g., clear the sewage drains twice per week), PPPs demand a particular outcome (e.g., the sewage drains are to be kept clear).

This allows public services to benefit from dynamic private sector innovation, since the profit incentive of the private party is to meet its outcome-based targets in the most cost-effective and efficient way.

Finally, PPPs often include local content requirements and transfers of skills and technology back to the public sector.

A typical PPP infrastructure project, for example, the construction and operation of a toll road, might be managed entirely by the private sector for the first 30 years of its existence.

After that time, the road would revert to public control, with provision made for appropriate training and transition steps.

If the government is unable to take control of the project at the end of the contract, they can renew the private party’s lease and continue to reap the benefits of private management.

Thus PPPs can sustain public services and build human capital even while significantly reducing the government’s upfront expenses and risks.

Recognition of advantages

The Government of Ghana has recognised these advantages in the past, using PPPs to manage both Tema Port and the Teshie desalination plant. Building on these successes, the Government issued both a 2011 National Policy on PPPs and a 2013 draft PPP bill to govern the use of PPPs in the country.

These laudable efforts should be built upon to aggressively pursue PPP contracts.

Ghana’s continued need for rapid public infrastructure development at low cost demands participation in PPPs.

Ghanaian trade, job creation and innovation urgently demand the abilities to communicate reliably, transport products, and access basic utilities, especially in currently underdeveloped locations.

Because PPPs are initiated and incentivized by the government, they can direct that investment to where it is most needed, rather than where development is already the most advanced.

Especially true at the local level, PPPs give MMDAs the power to tailor and refine public services to the particular demands of their residents, even where the MMDA might lack the in-house resources to provide such services.

PPPs offer the chance to supply public goods with maximal efficiency; they multiply the force of government resources to support Ghana’s economic advancement. Used appropriately, PPPs can promote local development and capacity building, expedite economic growth and dynamically satisfy the democratically expressed desires of Ghanaians.

To be continued. 

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