PPP investment in five major Southeast Asia economies-Indonesia, Malaysia, the Philippines, Thailand, and Viet Nam-has been less than 1% of their annual gross domestic product (GDP) since the first decade of the 2000s. Project cancellations remain a big disincentive, not least because of high sunk costs. From 1991 to 2015, PPP projects with $41.6 billion in initial committed investment were canceled, affecting 6.3% of all committed PPP investment in developing Asia.
The World Bank (2017b) assessed the performance of 82 economies in four thematic areas of PPP processes: preparation, procurement, contract management, and unsolicited proposals. Although the World Bank found that Asia and the Pacific was close to the global average score in its rankings for these areas, its report showed that only 13% of countries in the region have detailed procedures to ensure the alignment of PPPs with public investment priorities.
Weak governance in many developing Asian countries can make PPPs less attractive, and may discourage private sector investment in infrastructure PPPs. Countries in developing Asia get low rankings in the World Economic Forum's Global Competitiveness Report 2017-2018 on the quality of their legal and institutional environment. Hindering the whole PPP process are legal gaps that affect these partnerships, PPP policies lacking cohesion, redundant contract processes, and laws and regulations that change unpredictably. According to businesses in the region, the most pressing problems affecting investor confidence are lapses in law and order, government inefficiency, corruption, and political instability. Many governments do not have the institutions and capacity to handle PPP projects, and only half of developing Asian countries have dedicated PPP units. These have numerous and varied roles, including coordination, quality control, and accountability to procurement processes, and they provide transparency in PPP negotiations.
The political vulnerability of PPP projects in the region is also a long-standing concern for infrastructure investors, with these projects less likely to be implemented in countries where sovereign risks are high. In developing Asia, 59% of countries are unrated and, therefore, considered risky by international lenders. Twenty-six percent are rated below investment grade, and only 15% lie at or above investment grade.