Public-Private Partnerships—A Promising Path Forward if Done Right

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By Jerry Haar

Assessing the economic condition of the State of Maryland where he was elected governor in January, Wes Moore concluded: “we are asset rich and strategy poor.” Some would argue that evaluation applies to Guyana, as well.

The fastest growing country in the world faces a crucible—become a one-trick pony (oil) like neighboring Venezuela or harness fossil fuel wealth to spark economic diversification as the Gulf States, Saudi Arabia and Nigeria have been doing.  Whatever the case, one thing is uncontestable—a well-developed infrastructure is the prerequisite growth and development, be it in transport, agriculture, energy, education, healthcare, information services, tourism, or light manufacturing. Guyana is challenged here due to poor infrastructure, especially with regard to roads, electricity, water and transportation. Rising oil revenues and multilateral and bilateral financial support will enable the nation to alleviate many of the obstacles impeding its advancement.

Guyana’s infrastructure challenges are daunting; and neither the government nor the private sector alone can provide a panacea; however, public-private partnerships (PPPs or P3s) provide a promising path forward, if designed and executed properly.

These P3 projects (as they are known) involve private sector financing, construction or management in return for a steady flow of payments from government or users over the projected life of the project. Essentially, the private partner plays a major role in the design, completion, implementation, and funding of the project while the public sector’s part is to define and monitor compliance with the objectives. These endeavors are carried out typically through one or more of the following: (1) design and build; (2) design, build, finance and operate; (3) build operate and transfer; (4) design, build, finance, and maintain; and (5) concessions.

There are both advantages and disadvantages of undertaking PPPs. On the positive side, there are clear mutual benefits, as private sector technology and innovation can improve the operational efficiency of public services. For its part, the public sector provides incentives for the private sector to deliver projects on time and within budget. As for disadvantages, the private sector may be challenged by physical infrastructure risks surrounding roads, railways and construction projects. Time delays, cost overruns, and technical defects can surface as well, not to mention political scapegoating by the government when the public protests pre-negotiated increases in tolls, rates and fees for public services.

PPP programs can be very effective, and there is ample evidence that they have outperformed public works on indicators such as cost overruns and delays. Analyzing more than 2,000 PPP contracts by the UN Economic Commission on Latin America and the Caribbean, success depends on the existence of an enabling, efficient, consistent, credible and transparent environment to send the right signals and attract the private sector. When these conditions are met, it is not surprising that PPPs have project failure rate in the developing world that is below the overall corporate failure rate.

Just what makes for a successful PPP? The most notable ingredients are a shared vision by the public and private entities, a development team with the right expertise, due diligence, knowledge of one’s partner(s), mutual agreement that the terms and conditions of the PPP are fair, and clear decision-making processes. One must also include political will, sound and effective institutions and governance, and sophisticated and highly skilled project teams.

For Guyana, PPPs are emerging as a vitally important mechanism to carry out the government’s Guyana Vision 2020, aimed at enhancing the employment generation of the economy and raising the quality of life of all sectors of the population. PPPs can achieve the objectives of meeting Guyana’s infrastructure needs, improving efficiency, balancing fiscal prudence with fiscal stimulus, and achieving diversification.

Projects like Berbice River Bridge, Demerara Harbour Bridge, Deep Water Harbour and Container Port, and agro-industrial and small manufacturing arks are ideal for PPPs, as are East Bank and East Coast of Demerara housing programs. For such projects, pre-conditions must be met including affordability, a positive legislative environment, sound institutional arrangements, and capacity building mechanisms. Equally important are opportunities for local companies to partner and the knowledge transfer gained from those joint ventures to the benefit of Guyanese citizens.

As with the Local Content Law, the best intentions need to be tempered with a healthy dose of reality. In terms of PPPs, no proud Guyanese nationalist wants to give the keys to the safe deposit box to foreign companies; at the same time, no right-thinking proud Guyanese believes that government-run projects can exceed private ones in efficiency and effectiveness. The reality is that Guyana’s small size limits its ability to “go it alone” on large scale projects, especially those that require a turnkey operation. Collaboration with large foreign firms is not a choice, but a necessity.

While public-private partnerships are not a magic elixir to advance Guyana’s economic growth and development, their value in advancing the nation’s goals should elevated to a higher level than at present. Done right, PPPs offer a successful path forward towards prosperity.

About the Author

Jerry Haar is a professor of international business at Florida International University and a fellow of the Woodrow Wilson International Center for Scholars in Washington, D.C., and Council on Competitiveness.

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