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PPP projects to help bridge infrastructure gap in GCC
October 7, 2017, 3:37 pm

Consecutive budget deficits brought on by relatively low oil prices in recent years have led to fiscal consolidation drives, and efforts aimed at transforming and diversifying the economy, in Kuwait and other Gulf Cooperation Council (GCC) states.

However, with public coffers strained to the seams, any economic transformation in the region will require greater private sector participation in the economy, says a new report by management consulting firm Oliver Wyman.

“Robust economies rely on a dynamic private sector,” said Jeff Youssef, Partner, Oliver Wyman Middle East, who co-authored the report titled, 'Bridging the Infrastructure Gap: Engaging The Private Sector in Critical National Development’.

“The delivery of sound and reliable infrastructure, from roads and bridges to public utilities, is a fundamental driver of economic growth, and the demand for such services is expected to surge over the coming years. Unfortunately, governments in the region are increasingly finding it difficult to allocate the necessary funds for the infrastructure projects needed to cope with this projected increase in demand,” noted Mr. Youssef.

He added that boosting private sector participation in the economy would allow governments to benefit from the private sector's ability to inject capital and expertise in infrastructure development projects in the region.

Annually, nearly 4 percent of the global GDP, or nearly US$2.7 trillion is being invested each year in infrastructure worldwide. However, it has been estimated that an annual spend of $3.7 trillion would be needed to meet the global growth in infrastructure demand. Therefore, there is an annual gap in worldwide infrastructure investment of nearly US$1 trillion, or a 27 percent shortfall, notes the Oliver Wyman study.

The report points out that, whereas more than 50 percent of infrastructure projects are privately funded in developed economies, private investments in emerging markets and developing economies (EMDEs) remain limited. Today, nearly 70 percent of infrastructure projects in EMDEs are financed by government budgets, 10 percent by multi-development banks, and the remaining 20 percent by private investors.

Though in recent times, the contribution of the private sector to infrastructure investments has increased, unfortunately, many privatization and public-private partnership attempts have failed, mainly due to the government’s inability to recognize and counter the potential risks from increased private-sector involvement.

Five major risks, identified in the report, which could lead to the failure of collaborations between the private and public sectors are: Limited local private sector experience; Lack of sustained political commitment; Over-staffing in public sector labor force; No clarity on expectations and poor agreement design; and poor regulatory framework and environment.

The report outlines how preparation is vital to effective execution when it comes to increased public-private collaborations, and recommends a four point plan for GCC governments: defining objectives; setting up an effective central authority to oversee the programs; developing clear and transparent procedures; and creating a clear plan.

It is growingly obvious that governments in the region can no longer rely on public funds to meet the growing demand for public utilities; but, failing to meet the infrastructure demand means missing out on significant economic opportunities. The report concludes by urging greater and more efficient private sector involvement in the economy, and calls on governments in the region to enhance the attractiveness of infrastructure opportunities for the private sector. 

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