Analysis: Completing the Jigsaw
The two main drivers shaping infrastructure discussions around the world are undoubtedly Covid-19 and climate change, and few countries are caught in the crosshairs of both quite like Bangladesh.
According to the Global Climate Risk Index, Bangladesh experienced the seventh biggest impact of climate change of any nation over the last 20 years – the top non-island state, suffering from frequent floods, storms and tempests.
Furthermore, its southern regions are largely at, below or will soon be below sea level. With a contracted economy and fiscally funded infrastructure under strain, Bangladesh is under immense pressure to mobilise private finance to help reduce its infrastructure deficit.
Despite taking important strides over the years to put in place a PPP framework, the government has recognised that previous PPP initiatives did not take off as expected.
As a result, it is trying to strengthen existing PPP institutional arrangements by bringing in experts with proven capacity to develop international financing.
According to the plan, Bangladesh is aiming to achieve a “strategic shift in financing”. This will happen with “a stronger reliance on PPP-type financing”, looking to mobilise additional infrastructure financing equivalent to 1-1.5% of GDP through PPPs.
This ambitious programme will need a strong foundation and although Bangladesh has a strong track record of attracting private capital into the energy sector through independent power producer (IPP) agreements, this has not yet translated into PPP projects in other sectors.
This is despite the existence of a specialised PPP unit (the PPP Authority), a PPP law, policies on unsolicited proposals, viability gap funding and project development support, as well as multiple financing vehicles that can trade in local currency.
“Bangladesh has a relatively robust PPP framework on paper, it’s the implementation of the framework that needs to be strengthened,” says Mark Giblett, senior infrastructure finance specialist in the World Bank’s Infrastructure Finance, PPPs and Guarantees Group – and ex-group head of SMBC’s Asia Pacific project finance division. “They have all the pieces in place, but not all the pieces are talking to each other.”
However, work is being done to bring it all together, with Giblett and his team working on an operations manual, as well as identifying a pipeline of potential PPP projects.
Alongside this, the current PPP Authority chief executive Sultana Afroz is said to have the political clout (she is also secretary of the government of Bangladesh) to bring the movement together. “The CEO is very keen to see that the capacity of the PPP Authority is strengthened and the government as a whole is very keen to support the PPP agenda,” Giblett says.
As is common in many governments around the world, nurturing the capacity to identify and carry out projects remains a challenge for Bangladesh. “The PPP Authority recognises that and requested the World Bank and other development partners to provide support,” Giblett continues, adding that this was initiated following a World Bank report presented to the Bangladesh government earlier this year.
Alongside capacity, government-to-government financing, particularly from China, has contributed to the country’s PPP inertia - although those two countries are starting to move apart, having recently cancelled some bilateral projects.
Although there are challenges to come, changes are underway, and the political will of the government cannot be overstated. “I think Bangladesh is a potential hotspot,” says Giblett, who adds that there is a “positive perception” of the country from international investors, particularly when compared to other countries in the region.
With over 70 projects listed by the PPP Authority in various stages of preparation or procurement, there is an exciting market ready to take off. Most of those schemes are in the transport and healthcare sectors, and feature some impressive port, light rail and bridge projects.
While some of the projects may be more akin to privatisations, the World Bank is looking to help the country select those that can form a bonafide PPP pipeline. It expects these to start emerging in 2022 - with transport, energy and wastewater projects to the fore.
Not all of the work can be left to the public sector and multilaterals, however. “Given the government’s fiscal constraints, the private sector has a very important role to play in providing much needed finance to support sustainable, resilient and inclusive development,” Giblett explains.
“Bangladesh is trying to get itself ready to be open for business, it realises the importance of raising private finance and there is a clear strategy to do that through the five-year plan. The government has put in place a strong framework but the government recognises that the processes need to be improved and that a proper pipeline is needed.
“It has a large population, a growing economy with good resources, but most importantly it wants to improve connectivity,” he concludes.