Analysis: Here to Stay
According to the IMF, emerging markets are going to host almost two-thirds of the world’s new infrastructure in the next 10-15 years. With chronic skills shortages, public finances depleted and new priorities, Covid-19 has made the role of the multilateral development bank (MDB) even more crucial.
At the beginning of the pandemic, Partnerships Bulletin spoke to the World Bank to ask how it defined and started its plans to help nations cope, recover and learn from the pandemic.
For PPPs, the plan was broadly divided into three parts: Firstly, and most urgently, securing the operational services to ensure the health and safety of populations. Secondly, provide labour-intensive stimuli and ensure the financial stability of service providers; and, thirdly, to create a new generation of PPPs with the resilience to cope with future stresses or even another pandemic.
For the first phase, the MDBs have risen to the challenge – giving countries access to over US$100bn to support services, such as the World Bank’s recent loan of $500m to Colombia to support its PPPs.
“All the MDBs have come to the plate and, given their business models, they have been able to deal with the liquidity phase of this crisis very well,” says Martin Chrisney, KPMG’s senior director of its International Development Assistance Service Institute. “The broader question is: when is the transition into the recovery phase? As the path of Covid-19 is still uncertain, we are dealing with a moving target.”
As regions start to move from, or oscillate between, the coping and recovery stages, when looking to stimulate their economies it’s often not a shortage of money that’s the issue, but how it’s deployed.
“I don’t think the story is strictly about the availability of capital,” Chrisney explains. “It’s about how wisely you use it to support a growth story in the recovery phase – it’s there we need more creative thinking in PPPs and how they combine with the private sector to leverage their funds, and that’s going to be a great challenge.”
In Latin America the multilaterals have already taken creative approaches to bring projects forward. “We have good stories coming in already,” says KPMG’s head of infrastructure for the Latin American region, Fernando Faria.
“With Covid-19 we haven’t seen as many financial closes but actually, the Bogota metro being a fine example, the ability of understanding that there is a limit in the private market and complementing this with some public financing and bringing the multilaterals is a way to leverage all the options available.
“We are seeing an increased involvement with multilaterals, which we see as fundamental,” he continues. And when the projects are right, “we’ve seen an increased interest from international investors into these markets – no doubt about that”.
Further stressing Chrisney’s point, Faria agrees that what’s needed in the recovery phase is “creativity on the government’s side, which the MDBs may have a role in bringing”.
This desire for creative guidance from the MDBs to help the recovery plan has not fallen on deaf ears – but to be creative, you have to know what you’re working with.
“Our starting point was to have brainstorming sessions with all the PPP units,” says Aijaz Ahmad, senior specialist in the World Bank’s Public Private Partnerships Group. “We stood back and tried to see how the ecosystems for PPPs were working – where are the projects coming from? If you can figure that out, you can influence how to filter them.”
With nations coming in and out of lockdowns, supply chains either slowed or severed and the configuration of society yet to fall into place, systemic changes have put myriad questions to PPPs present and future – will the trains ever be full again? Is fibre the future? But the ultimate question for new PPPs is: what’s the priority?
“Reprioritisation is a common thread when we talk to all the governments,” Ahmad explains. “In terms of recovery, we need to create jobs, create business opportunities, and you keep hearing about ‘shovel ready’ projects, so you may need to reprioritise, but it’s easier said than done.
“When you start to look at prioritising projects, it’s not just looking at the unfulfilled needs but it’s also maximising the utility of underutilised assets – such as schools working as community centres,” he continues. “One of the big things is maximising financial development. If the government is spending money, how can it spend it in a way that leverages the maximum amount from the private sector? It’s also reprioritisation in that sense.”
By dealing with these kinds of large issues, MDBs can really come into their own by providing the support and creativity needed to help the public sector produce attractive and worthwhile projects. “Our role is very upstream on the framework side; it’s also handholding the public sector through the thinking process helping them understand that there are ways to do this that benefit both their people and their purses,” Ahmad says.
Whatever these new projects turn out to be and what form they take, Ahmad is certain about one thing: “These new PPPs are definitely here to stay – while you’re doing these things you’re looking at what’s next.”