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Pro-poor gap in Public-Private Partnerships

Published: 
15 Nov 2017

Investments in Public-Private Partnership (PPPs) in developing countries increased by six times, from US$24.4 billion to US$144 billion between 2004 and 2012, rising to US$120.2 billion in 2015. Such an overwhelming increase means it is essential to measure the accomplishments and contributions of these investments. In doing so, identifying the factors behind both their successes and failures can provide the essential lessons needed to improve the future design and implementation of the partnerships.

The Independent Evaluation Group (IEG) to the World Bank Group issues an important evaluation report that underpins support for the PPPs. Its report for 2002 to 2012 reviews PPP interventions around the world and then seeks to provide recommendations to related institutions that include the World Bank, International Financial Corporation (IFC) and the Multi-lateral Investment Guarantee Agency (MIGA). Among other tasks, the evaluation teams review project-level assessments of individual PPP projects.

One of the World Bank Group’s central goals is to fight poverty and Group-supported PPP initiatives need to be aligned with this strategic social goal. However PPP projects are more contributory in nature to economic growth through infrastructure development than automatically linked to poverty reduction. When an economy grows in parallel with falling poverty rates, economists call it ‘pro-poor growth’, a concept analogous to PPP development. Development experts hold that pro-poor PPPs must have benefits, outcomes and welfare-distribution channels focused on the poor. For example, PPP performance indicators state that pro-poor PPP projects should display an increase in connections or use in poor areas, in areas that include piped water or electricity projects, access to medication and health services such as health clinics, increased bus share of traffic or the development of economic zones.

Several evaluation systems are used by individual PPPs in client countries. However, their focal point is whether or not the individual evaluations are able to record their achievement in addressing the concerns of stakeholders, including poor beneficiaries.

In its 2015 report, the IEG stated that under its new strategy, the World Bank Group intends to work with the public and private sectors to end extreme poverty and promote shared prosperity. PPPs financed by the World Bank must thus include pro-poor objectives of providing infrastructure or services. Project-level monitoring and evaluation systems must be properly designed to include this target as measurement for a project’s success.

But in its 2014 report entitled ‘World Bank Group Support to Public-Private Partnerships’ the IEG admitted that there was a big gap in monitoring and evaluating pro-poor data. The available numbers are mainly business performance indicators, including the number of users for cash flow estimation while there is a paucity of data for other PPP success dimensions such as pro-poor aspects and fiscal effects (See Figure 1).

The 2014 WB Group Support Report reveals that data on the pro-poor coverage and fiscal effects are the least found. Although the central goals of the World Bank are to fight poverty as well as promote prosperity, individual PPP internal audit teams have emphasised financial performance as a PPP project success indicator and have seemingly forgotten that PPP projects in developing countries should be for the poor, a factor that necessitates social targets as measures of success.

The report reviewed worldwide PPP evaluations from 2002 to 2012. Figure 1 shows PPP projects supported by international financial institutions including the World Bank, IFC and MIGA, together with data on the available results.

Figure 1 Availability of result data for World Bank Group-supported PPPs

Figure 1 shows zero PPPs with data across all dimensions. There are less than 10 PPPs with available data on pro-poor dimensions (about eight percent of PPPs). This ratio is too small to meet the strategic goal of the Bank to assist the poor.

Further, in the IEG Report 22 PPP cases were selected for in-depth assessment. IEG report data was used here because the available summary it provides is needed for the scope of this article. These PPPs are located in three regional clusters: Latin America (Guatemala, Columbia, Brazil), East Asia Pacific (Vietnam, the Philippines, China) and Sub-Saharan Africa (Ghana, Uganda, Senegal). This assessment showed that pro-poor performance indicators for water and transport PPPs (i.e. access for the poor or high coverage in poor areas) are significantly high.
 

Among the rare cases of addressing pro-poor objectives, the IEG report noted several initiatives in the Philippines that benefited the poor. The field of development interventions in the country included improved water connections, electricity connection and transport participation, which required some finance contributed by users.

Figure 2 Pro-poor experience in the Philippines

Source: IEG Report

Evaluation experts at individual PPPs must have known of the social objective to include the poor. It was not difficult for PPP teams to record data on how many poor households from beneficiary households are connected with piped water systems or electricity grids funded by the project, and then to include this ratio in evaluation reports. But most of them, as compiled in the IEG report, did not do so. There were several justifications.

First, the ‘disconnect’ issue. The problem on the ground is so tough that teams find it hard to adhere to the predetermined design objective, i.e., including the poor. Ideally, the higher the poverty coverage rate, the better it is. And these types of objectives have been set up at the Bank’s office. But, in practice, teams struggle with such objectives. For example, rural PPP piped water use requires connection costs and periodic tariffs. Due to the limited budget, local grants may pilot funding for just a small number of connections with a discount in the project’s first year, but not for total costs and not for monthly tariffs (e.g. the Philippine water PPP case). Poverty coverage is therefore low, and may be lower as connected households abandon piped water to avoid monthly tariffs. But evaluators do not want to see a decrease in the number of poor beneficiaries in their reports.

Second is the issue of being ‘solution-based’, not ‘problem-based’. Development designers stick to a solution, which is possibly successful in some context and want to emulate it in all contexts. In fact, each context is characterised by its individual complexity features that require a matching solution. Teams may come to a locality with the idea of addressing the ‘lack of tapped (piped) water’, for example. The truth is that ‘tapped water’ is not a problem, but is just one of several options used to resolve the problem of health or more specifically, ‘water-borne diseases’. Practitioners can select the best option to address this problem in a way that is affordable and feasible for local people.

Third, in the PPP implementation process, there may be stakeholders that are considered more important than the poor beneficiaries. To guarantee a project’s completion, priority is given to the more important stakeholders. Freeman suggests a two-variable framework consisting of stakeholders’ interests and power, which holds that a stakeholder with strong authority or power and a high level of interest in the project outcomes requires them ‘to [be] manage[d] closely’. For instance, private investors are very interested in PPP project profitability. Specifically, they would like to know how many households are willing to pay for connections and tariffs so that they know when the project would pay back their initial investment capital. They may be concerned if there are many households without the capacity to pay.

Private investors have a strong voice because whether the project is funded or not depends on their decision. Therefore, PPP performers may struggle or may not want to plan the number of households without the capacity to pay, unless there are guaranteed sources of grants for them (as in the case of the piped water PPP in the Philippines). This hesitation may lead to the ignorance of pro-poor requirements, which means evaluation reports miss this data.

In summary, it is conventionally believed that public infrastructure facilities are public goods rather than commercial goods. All classes of people are entitled to use them. The World Bank Group strategy states that PPPs should include the poor who have difficulty paying for those services. This presents a potential conflict of interest with private investors who seek financial returns from users. Even so, several options are available to tackle this challenge. Private companies may follow corporate social responsibility (CSR) practices including subsidising or providing grants to the poor. Designs used in monitoring and evaluation reports can also allow for some flexibility in recording pro-poor data depending on local conditions. Sources of pro-poor data may also come from private sector CSR reports, not necessarily from project records. Nevertheless, any PPP will need to set up a monitoring and evaluation system to make a comprehensive assessment of PPP success, including the pro-poor aspects. Without them, PPP results are not completely aligned with the World Bank’s strategy for the poor, not to mention the same for the many NGOs that keep asking the Bank to meet this social objective.

 

Author Tung Nhu Nguyen is a Lecturer at the School of Business at International University, VNU-HCM in Ho Chi Minh City, Vietnam

 

References

  • Department for International Development, “Private Sector Development Strategy Prosperity for all: making markets work”, 2008, https://www.enterprise-development.org/wp-content/uploads/DFID-Private-Sector-development-strategy.pdf
  • Freeman, R & Mcvea, John, “Strategic Management: A Stakeholder Approach”, Pitman series in Business and Public Policy , 1984.
  • Independent Evaluation Group, "World Bank Group Support to Public-Private Partnerships: Lessons from Experience in Client Countries, FY02 – 12",   http://ieg.worldbankgroup.org/sites/default/files/Data/Evaluation/files/ppp_eval_updated2.pdf
  • Ravallion M, “Pro-Poor Growth: What is It?”, International Poverty Center, UNDP, http://siteresources.worldbank.org/INTPGI/Resources/CommentonKakwani.pdf
  • Romero, M.J. & Vervynckt, M, “PPPs lead to dangerous debts for developing countries — it’s time for the World Bank to act”,  https://www.devex.com/news/opinion-ppps-lead-to-dangerous-debts-for-developing-countries-it-s-time-for-the-world-bank-to-act-89726
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