Public–Private Partnerships in Developing Countries

Abstract

First used in developed markets, public–private partnerships (or PPPs) are being increasingly used to deliver critical infrastructure projects within developing countries. The success in developed markets is, however, unlikely to be easily transferrable to developing markets, and the usefulness of the contractual framework unpinning PPPs in such countries is worth questioning. In particular, a number of important developmental questions need to be answered. Are developing countries’ economic objectives best achieved through PPPs? Can developing country’s institutions support successful PPP procurement? Does a pipeline of PPP projects in a developing country ensure the growth of high-skilled jobs in the country? By exploring the experiences of PPP procurement in Chile, this article draws the conclusion that it would be in the best interest of developing countries to require domestic or local involvement within PPP consortiums, either through domestic ownership or in domestic/foreign construction partnering. Such local involvement is most likely to ensure the development of domestic engineering and construction companies and mitigate the potentially negative effects of an infrastructure market dominated by foreign influence. PPPs have been lauded for providing the ‘best of both worlds’ of private and public involvement. But the complex contractual structuring, sophisticated financing and robust institutional support involved, make PPPs an inaccessible tool for many developing countries. Outside of Australasia, Europe and North America, Chile has enjoyed some of the greatest success in promoting infrastructure development through PPPs. Since 1991, Chile has completed more than 50 PPPs, totalling over US$12 billion in capital investment in its roads, hospitals, ports and electricity system, and has been held out as a model for other less developed nations to follow (Hill, 2011, p. 189). What institutional prerequisites do developing countries need before PPPs become a viable option for infrastructure procurement? What can developing countries learn from Chile’s experiences with PPPs? From a developmental perspective, what could Chile have improved in designing its PPP programme? Split into three parts, this article seeks to answer each of these questions. ‘PPP Overview’ outlines relevant definitions, the various PPP contractual structures, which prerequisites make PPPs most effective and how PPPs encourage competition. ‘The Chilean PPP Case Study’ explores in greater detail the history of PPPs in Chile, the country’s institutional framework and some of the key outcomes from its concessions programme. Finally, ‘The Case for Domestic Involvement’ focuses on a noteworthy omission from the Chilean PPP model, requirements for local involvement. It is the author’s view that other developing countries will enjoy longer term benefits from PPPs by establishing a stance supporting the meaningful involvement of domestic companies and should, therefore, encourage PPPs not only for the public–private collaboration but also for the domestic–foreign cooperation they can foster.