Municipalities have relatively little control over the economic context within which they operate, yet it severely affects their ability to implement PPP approaches to service delivery. Even amid the greatest political commitment, and the soundest policy and regulatory frameworks, negative economic conditions constrain private sector involvement. Conversely, in buoyant economies, the opportunities and incentives for private sector participation increase.
Various aspects of the economic environment shape the scope for, and affect the capacity of, a municipality in a developing country to establish private sector participation. They are: the changing global economy, the pressure to balance growth strategies with effective interventions to alleviate poverty, and national macro-economic trends and policies.2 While they are outside the scope of the municipality, these factors will determine private sector incentives and the attractiveness and risk of the proposition. Municipalities must familiarise themselves with the impacts.