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Read almost any newspaper in London these days and you’ll quickly notice that Public-Private Partnerships (PPPs) are under attack. If you listen to the pundits there, you’d think that all PPPs are financially unsustainable, inflexible and designed purely to line the pockets of greedy investors. Similar push-back is being felt across other developed markets.

But in the emerging markets, private finance has increasingly been hailed as essential to driving the pace of investment that is needed to meet countries’ aspirations for economic growth and quality of life.

In part, this is being driven by concerns about affordability at the government level. Few emerging markets have access to all the capital they require to fund their infrastructure needs through public sources. As António Guterres, UN Secretary-General, noted in a recent article he wrote in the Financial Times,1 “Public resources from governments are simply not enough to fund the eradication of poverty, improve the education of girls and mitigate the impact of climate change.” The emerging markets understand this better than most.

At the same time, many emerging markets are now seeking to encourage some level of competition in infrastructure procurement. The reality is that, while there has certainly been increased foreign investment into many emerging market infrastructure projects over the past few years, the vast majority has been conducted with a high degree of government-to-government involvement.

Now emerging market governments are starting to get serious about creating the right preconditions for encouraging real competition and sustainable private investment.

Egypt, for example, is in the midst of updating their PPP laws as a way to drive funding to major projects.2 Indonesia recently opened up their urban transportation development sector to private investment.3 In Malaysia, the Finance Minister is pushing a drive towards what is being called ‘PPP 2.0’.4 As we noted in our most recent edition of Insight Magazine, many East and Central African governments are also making great strides towards opening up their infrastructure sectors to private finance.5

That is not to say that all emerging markets are moving in the same direction and at the same speed. Despite their best hopes, a number of them simply lack the institutional preconditions to attract real private investment — security, rule of law and contract certainty, for example. Others are allowing populist agendas and a general lack of regard for future debt sustainability to fuel large governmental spending projects and to maintain subsidies that undermine competitive markets.

However, we see an overwhelming shift towards the institutionalization of private investment in infrastructure within the emerging markets. Over the coming year (and more), expect to see more emerging economies start to open as governments look for ways to better manage their debt sustainability while also improving competition and, hopefully, transparency.

Look back: What did we predict? In 2019, we predicted “an increasing, and important, focus on improving the ‘bankability’ of emerging market opportunities by creating more rigor in the ways projects are prioritized, selected, developed (by undertaking more robust technical and financial feasibility analyses), ‘de-risked’ and procured.“

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