Building and upgrading infrastructure is widely acknowledged to bolster and sustain economic activity. Infrastructure helps emerging economies avoid unnecessary bottlenecks. And economies at all levels of development need infrastructure to improve connectivity, and to be able to advance agendas for economic development. The increased use of PPPs as a procurement method by countries and across sectors is being driven by expectations that these partnerships will deliver better-quality and more affordable infrastructure services.
PPPs can be particularly effective in reducing poverty by using them to develop social infrastructure that provides welfare services, such as basic health care, clean water, primary and secondary education, and housing. But, so far, this has not been done on a large scale in Asia. Data from IJGlobal show that, from 2000 to 2016, Asia accounted for only 5% of all PPP projects in education, health care, housing, and other social sectors, compared with 90% in Organisation for Economic Co-operation and Development countries.
The benefits of infrastructure PPPs are the functional features of these partnerships; that is, a life-cycle perspective on the provision and pricing of infrastructure, a focus on service delivery, and sharing risks between the public and private sectors. Well-structured PPPs manage risks by allocating them across both sectors in a way that optimizes their cost and aligns incentives for performance. In PPPs, design, construction, and operational risks are typically passed on to the private partner. The private partner calibrates the design of, say, a road or new airport that responds to life-cycle costs and to meet performance obligations set out in the contract. Private partners innovate when risk-sharing provides incentives to avoid failure, and deliver timely and cost-effective physical infrastructure and infrastructure services.
Successfully carrying out PPP projects requires good governance and, if needs be, governments redesigning their regulatory and policy institutions. The institutional improvements required to implement PPP projects can also help establish a more robust investment environment for other private sector activities.