Public-private alliances, vital for the development of Latin America
After a decade of exceptional growth, economic activity in Latin America has lost dynamism. Although it is a heterogeneous region, growth prospects for coming years indicate an average fall of 0.2 percent for 2015 and growth of close to 0.6 percent for 2016
This lower growth rate is limiting the investment capacity of national and local governments for infrastructure works in the region, a key aspect for the comprehensive development of societies.
Facing this scenario, public-private alliances (PPA) represent a good tool to maintain the pace of investment in infrastructure and development projects, both essential to improve the quality of life of millions of Latin Americans.
The advantages of PPA are clear: they represent additional funds for governments that go beyond public resources, to invest in development projects while, at the same time, they incorporate the private sector's technical and managerial knowledge, contributing value added and greater technical efficiency.
The area of infrastructure is one that can get the greatest benefit from this investment modality, especially because if Latin America wants to enter the league of developed regions, it must mobilize an amount of funds that the public sector currently can hardly face alone.
Investments in infrastructure contribute to improve productivity, international competitiveness, and social welfare, according to the report "Asociación Público-Privada en América Latina: Aprendiendo de la experiencia" (Public-Private Association in Latin America: Learning from experience). In summary, they may be a boost for national economies.
The report developed by CAF, Development Bank of Latin America, states "the public-private association schemes represent one of the largest innovations in the Latin American infrastructure sector. The experience of other countries such as Spain and England, helped develop this type of collaboration in the region".
In Latin America, investments in infrastructure have been mainly in the transportation area (especially highways), electric energy (supply and generation of electricity), telecommunications, and public equipment. The report indicates that water, sanitation, and urban transportation are sectors that have stayed behind.
Successful cases in the region
Chile is one of the successful cases in Latin America. The Andean country promoted investments in transportation infrastructure combining public capital and private national funds. With this combination, they managed to create one of the most advanced transportation infrastructures in the region, benefitting both the citizens and private investors.
Another example is Mexico, where concessions and other PPA models have evolved to introduce private initiative in the provision of infrastructure despite the problems of the concessions granted at the beginning of the 1990's within the framework of the National Highway Program.
In past years, several countries in the region, such as Brazil, Mexico, Colombia, Peru, Ecuador, and Chile have promoted ambitious plans to develop infrastructure. Everything indicates that contracts based on PPA's are effective instruments to obtain financing and the resources necessary to promote development.
The report concludes with 12 challenges for PPA's in Latin America in coming years:
- Show that PPA projects generate value with respect to other conventional bidding procedures.
- PPA's should not be used to develop projects without social justification, and which end up generating significant budgetary burdens in the future.
- Those in the public sector who are responsible for PPA's should be well trained and show more enthusiasm.
- PPA's should be used as a way to manage projects at a regional and local level.
- There should be greater participation and competition in the bidding process.
- The transfer of risks to the different project agents should be as adequate as possible to generate value added.
- Once the concession is granted, contractual changes should be limited to those that are strictly necessary for the public interest.
- Financing for PPA projects should be open to all possible sources of resources available in the market.
- Society should value the projects that are developed through PPA's in a positive manner through good communications.
- Agile mechanisms should be in place to solve conflicts, involving technical and independent personnel.
- Income models of concessionaires should be adjusted to the provision of services.
- Transparency of information should be improved.
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