World View

Laurence Carter, senior director of the World Bank’s PPP group, tells Amanda Nicholls about a new culture of collaboration between the development agencies

PPPs and the World Bank have gone hand-in-hand since the model’s inception. Developing countries struggle to address infrastructure investment deficits without PPPs and struggle to get PPPs off the ground without the backing of multilateral development banks (MDBs).

But although the World Bank still has a remit on lending and advising on PPPs, its focus has been switching to cover wider infrastructure and supporting and educating the public sector in however it looks to deliver projects. And this more flexible approach includes a drive for MDBs to work together to provide the best support for governments.

Laurence Carter, senior director of the World Bank Group’s PPP group, has seen this shift ramp up since he joined the World Bank in 2014. Starting with the International Finance Corporation (IFC) in 1993 focusing on Eastern Europe, Carter transferred to the World Bank in Washington, DC, when the bank reorganised itself with a move away from a geographical focus to a sectoral one.

Five cross-cutting areas were established: climate; gender; jobs; working in fragile and conflict countries; and PPPs – which Carter now heads.

PPPs remain the backbone of his remit, but the group is about to be renamed ‘infrastructure and PPPs’ to reflect a move away from focusing on how projects are financed to the quality of the services that are delivered through those projects.

Carter thinks this is a natural move, mirroring how the model has developed in mature countries for PPP. “I think the name change reflects the evolution of places like the UK, where it started as PPP and then became infrastructure and now major projects,” he says.

The name change also reflects a desire to change the perception of the bank. Carter says the new ‘joined-up’ structure is about offering clients solutions and “moving away from the idea that each part of the World Bank is selling a product”.

Carter says: “So it used to be Miga [the Multilateral Investment Guarantee Agency] selling insurance and the IFC selling equity or financing to the private sector, the World Bank selling finance to the public sector and all parts selling advice.

“To help with PPPs you need a combination of many of these things. Governments need upstream advice on fixing the regulations and the business environment, they may want advice on transaction structuring, they may want a public sector loan to support the government’s obligations under a PPP and the public sector may want financing. So the idea is that the various areas within the World Bank work together in this way.”

Culture of collaboration

Along with offering a more joined-up product, Carter says the bank is also pushing for more collaboration with other MDBs to drive this agenda.

Recent work includes developing common advisory standards and a PPP reference guide as a joint effort between several MDBs. The next Global Infrastructure Forum in Washington, DC, in April will also bring together governments, development institutions and private sector parties to discuss what more can be done by the MDBs to push the infrastructure agenda.

But Carter says this culture of collaboration is already strengthening, stimulated by a couple of drivers.

“It seems in the last five years there has been a resurgence in the interest in infrastructure more widely. The adoption of the sustainable development goals (SDGs) made clear that the targets cannot be achieved by development aid and the public sector alone. The role of the private sector is critical and the MDBs are at the coal face of doing that,” he says.

“There is also a strong push by some investors – particularly institutional investors – to get more into infrastructure. We have seen some commercial banks become more cautious due to Basel III but institutional investors have become very interested and are looking at the MDBs to help them get into emerging markets.”

But the conversation about bringing institutional investors into infrastructure has been a long one. Has it finally reached a stage where they are getting comfortable with these types of deals?

“Overall the level of rhetoric has exceeded the level of closed projects,” admits Carter. “The interest is there but it’s too early to declare even partial success.”

He refers to the Private Participation in Infrastructure (PPI) project database that analyses sources of finance for projects. It shows that in 2015, of the $115bn invested into emerging markets, only 1% was from institutional investors – a flat rate from the year before.

However, he remains confident that those numbers have the potential to rise given the right environment.

He explains: “In some middle income countries, where there is strong political leadership and good administrative capacity and the fiscal and macroeconomic basics, we see a good response by the private sector. So think Turkey for health, think Colombia for roads, think South Africa for renewable energy.”

Carter says a programme of projects gives investors the security to commit time and resources to exploring entering the market. Fragile countries with a single project they hope to get to market are a bigger challenge.

For these poorer countries, Carter says it is not realistic to expect the private sector to provide lots of financing. But there are things that can be done.

“Our obsession is better services,” he says. “And improving public procurement by trying to break it down and make things easy for the governments.”

One of the ways the World Bank is doing that is through providing better data. It has produced a PPP procurement pack and a public procurement guide as Carter says the key problem in many countries is the procurement process and the transparency of that process. The bank also has a tool related to the prioritisation of infrastructure and another developed with the IFC that helps governments estimate the likely fiscal impact of a likely PPP.

“What we have seen in the past is governments want transaction advisers, and those transaction advisers will structure the contract, the bidding process will start but in the meantime the ministry of finance hasn’t set aside enough funds to cover their obligation on the project,” he explains.

And although Carter says that with “all sorts of guarantees and credit enhancements” a single project may get underway, you need the right environment to launch a programme.

“It isn’t just about providing or enabling private financing and providing credit enhancement products,” he says. “But also all the work that needs to get done with the public sector in reducing risks for the country as a whole, making sure regulations are in place and improving governance.”

Finally, Carter wants to outline the work his team are doing to improve transparency and admits that “one of our obsessions is disclosure”.

He says: “There is good disclosure about the tender and the RFQ stage, there is reasonable disclosure about the shortlist and who wins the contract but then there is minimal disclosure about how the contract is performing. We think that for PPPs to become less controversial and service the citizens better, there needs to be a more serious discussion around disclosure.”

The name of the group might be broadening to include infrastructure, but the bank is still committed to increasing the number of PPPs globally. And Carter is confident the number of projects will rise.

He explains: “There is a culture shift but it will take some time to inculcate the notion of private sector mobilisation to what would be more of a traditional public sector lending. It’s not like the current 90% of public sector lending is going to shrink to 20% but it could go to 75% for instance.”

But Carter and the World Bank know that any increase in projects will only come about if the development agencies work together to share ideas and push the agenda.

“There’s a determination from the World Bank to really push the cross-cutting infrastructure agenda in addition to the sector work and all the while collaborating with the other MDBs,” he says. “None of us can do this alone.”