Achieving the Sustainable Development Goals through PPPs:

Empowering Local Governments

Yu Namba, Associate Senior Researcher, Toyo University (Japan) Associate Expert UNECE

Introduction

The purpose of this paper is to provide participants to the International Forum on Public-Private Partnerships for Sustainable Development in Annemasse, France with information on the key issues that will be addressed as well as some recommendations for follow up. Overall, it explores the readiness of local governments to meet the Sustainable Development Goals with respect to raising the private finance that will be required and the actions of key stakeholders including international organizations such as UNITAR and the UNECE to address some possible weaknesses in local governments capability to undertake PPPs for sustainable development.

Challenge of the SDGs

The United Nations Sustainable Development Goals (SDGs), recently adopted by the UN General Assembly in New York have a major target – the eradication of extreme poverty by 2030. The SDGs identify Public-Private Partnerships (PPPs) as a key implementation implementation for achieving this and any of the other goals. This attachment to PPPs is explicitly mentioned in SDG Number 17. However, the costs of achieving the other SDGs such as universal health care, safe and clean water and sanitation, renewable energy for all and so on, will require massive investment running into trillions of dollars. By themselves both national and local governments do not have these resources and will need to leverage private finance if the SDGs are to be achieved by 2030.

The paper raises a number of questions for local governments, the private sector and for the PPP model itself.

For local governments: how will they fare in mobilizing the private sector when they often have little experience with PPP s?

For the private sector: how can they be attracted to invest in countries where the requirements for attracting traditional PPPs, namely:

  • adequate local debt and equity markets,
  • the ability (or willingness) of the community to measure service usage and/or pay user charges,
  • robust regulatory and legal frameworks,
  • government maturity in the planning and contract management of major infrastructure projects, and
  • local contractors with sufficient experience and size to tender for PPP project are almost totally lacking in both developing countries and transition economies?

 

For the model itself; how robust and appropriate is the PPP model in implementing the SDGs? In the UN Secretary-General’s Synthesis Report “The Road to Dignity by 2030” it called especially for a certain type of PPP which put people first, namely, principled and responsible public-private-people partnerships. But what precisely are “principled and responsible public private people partnerships” and how can they be replicated on a scale that will make a material difference to delivering essential services in developing countries and eradicating poverty?

The barriers to overcome for Local Governments

Local Governments will be especially challenged in accomplishing the goals through attracting private finance for their infrastructure and basic social services :

  • Sub-national governments have limitations in personnel, funding, knowledge and skills, and thus lack the capacity to develop and implement PPP projects. In addition, PPP regulatory frameworks and procedures — the approval process, budget allocation, procurement, and contracting — in many countries are complex and not easily applied to local settings.
  • Even when the PPP programme is well designed to be used at local level, local governments often lack capacity to develop a project pipeline caused by inter alia, poor project definition, poor appraisal and allocation of risks, poor output specification, poor Value for Money evaluations, limited ability to qualify/evaluate/select private partners, poor monitoring mechanisms and governance.
  • The market does not give sufficient confidence to local authorities in many developing countries — central or local — to enter into long-term contracts. While some countries are equipped with the credit enhancement facilities under their PPP programmes, it is very rare for local governments to actually benefit from such facilities. Local governments do not have the authority to support PPP projects by providing financial/economic support, or even decide/permit to increase user fees at appropriate level.
  • Because local politicians political terms are often limited and relatively short, they tend to get “short-sighted” in development. They prefer having a “quick” project in order for them to show the result to their citizens within their limited term. Sometimes, newly elected officials reject/terminate/postpone projects that were started by their predecessors.

 

These particularly affect a PPP project in the development phase, because PPP project development and procurement usually takes longer time than a conventional project, and prospective private partners are vulnerable until contracts are signed.

Some examples of how barriers to PPPs are being overcome at the local level

Not all the experiences however to date is gloomy and there are positive examples of PPPs at local levels which can inspire and be scaled up:

  • The Multilateral development banks have been very active in improving legal and regulatory frameworks at local levels.
  • In the water and sanitation sector a new wave of PPPs has emerged with pro poor agendas that are delivering better quality and lower cost water to poor customers e.g. the metro Manila PPP in the water sector.
  • Many developed countries (France and UK) have PPP programmes which target local authorities, and recently some local authorities in developing countries e.g. Philippines have set up special institutional facilities to successfully bring forward PPPs in many sectors, including disaster risk mitigation.

 

But it is still an incredible challenge for the private sector to invest in many countries where there are high risks and are prone to conflict. Major actions will be required if the investment gap in infrastructure in poor countries is to be filled.

Some conclusions and recommendations

Given the challenges identified, both local governments and the business community will need to forge a “new alliance” especially in new frontier markets. They will both need in this alliance to adopt a “new mind set” where both accept a fairer balance in risk and reward in projects and work together over the long term. Second, this new alliance may mean the business community accepting some adjustment to the traditional model of PPP they are used to. In developing countries some NGOs are very developed. They could act as the “midwifes” to bringing concrete projects into existence. Some of the cases mentioned, notably in the Philippines, showed the critical role played by Toyo University in helping local authorities to deliver some PPPs.

Finally, it will certainly mean a commitment especially the private partner to 'investing in people' into the capabilities of their employees — and a huge commitment towards the development of their local partners in local governments.

For international organizations more concerted actions at local levels will be needed such as building platforms to showcase projects that really contribute to sustainable development, scaling up impact through developing best practices and project templates or standards, and undertaking effective capacity building around these projects so that they can be implemented.

Networking of local governments to share their experiences and knowledge

Creating a platform for local governments to exchange their opinion, challenge, issues and best practices is also useful for local governments. An association of local government in a country can create horizontal cooperation among local governments, gather information and opinions from local governments lobby to national government, advocate members interests in national and international policy dialogue and increase governance and transparency by sharing knowledge, information and good practices.

Sharing best practices

Developing a database of successful/unsuccessful projects will help local governments learn Do’s/Don’ts in developing and implementing projects. By looking at details of actual project structure and financing models, local government officials as well as the private investors can learn how to adjust such successful projects to their local context, and how to avoid failures.

International PPP Standards

International PPP standards and model project templates that can be used by local authorities and which can “scale up” and make PPPs mainstream around the world at local levels are urgently needed. There is a clear correlation between PPP standardization and the acceleration of PPP in countries. The UNECE’s work in the development of international PPP standards could focus on a standard for local authorities in PPPs.

Capacity development programmes

Some countries’ national governments together with international organizations and MDBs are working on disseminating information to wide spread knowledge and step-by-step guidance to local governments. However, the information and documents cannot fill the capacity gap. In developing an actual project, there is a strong demand for capacity building programmes. The capacity building training should include case studies and review/ work on an actual potential project. These exercises may include both public sector officials and private sector practitioners so that one party can learn and better understand the perspective of the other party. UNITAR's PPP training programme for local governments will be an excellent vehicle to develop the necessary capability at local levels specifically focusing on projects.