08/06/12Gulf Cooperation Council (GCC) countries are engaged in ambitious economic development. The six GCC states have embarked on national investment programs worth over half a trillion dollars. These plans aim to promote the growth of the private sector and to decrease dependence on hydrocarbons. Much of this spending will be on infrastructure and public services, such as health and education. One way to invest this money effectively is through public-private partnerships (PPPs). These are established collaborative mechanisms between the public and private sectors that have been used extensively around the world.
Deployed in a rigorous and targeted manner, PPPs can offer GCC countries an effective way to promote their national development goals. PPPs can attract private-sector expertise and capital while effectively allocating project risk between partners. Although PPPs do not work for all sectors, and GCC countries should not overuse them, they can ensure efficiency, speed, transparency, and economic impact in the delivery of services or vital infrastructure.
For GCC states to derive the full benefit of the PPP mechanism they will need a different approach to that used by either industrialized nations or developing countries. Specifically, GCC countries should adopt a rigorous methodology before starting PPPs. Critically, they will need to draft a detailed multisector road map to identify PPP-appropriate sectors and projects. Governments will also have to build their own planning and oversight capabilities.
PPPs can be complex, multigenerational endeavors. Therefore, governments need to consider whether they have the correct legal, governance, and supervisory frameworks.
- The legal structure matters because PPPs can potentially involve legally complex aspects, such as the reversion of assets back to the state—provisions not always covered by existing laws.
- The governance framework involves monitoring PPP projects. Governance, like legislation, aims at fairness and balance for the government as well as for the private providers.
- The supervisory framework involves overseeing PPP projects on a daily basis.
While these frameworks are important considerations for the GCC states, the most crucial step in using PPPs is to develop a multisector road map. This rigorous methodology connects PPPs to national development goals and identifies where they are most likely to succeed.
The roadmap is a top-down analysis that breaks down the economy into sectors, points to projects suitable for PPPs within these sectors, and then filters them accordingly to priorities, before finally plotting them on a schedule. The five phases of road map development are
Sector Selection
Sector selection involves determining PPP-appropriate sectors. GCC governments will need to decide which economic sectors would benefit from PPPs by answering two questions. The first relates to the willingness of the public sector to reduce its control over a particular activity, the second asks about the sector’s role in national development.
Sector Analysis
Sector analysis means examining each sector’s value chain to find PPP opportunities. The government should assess value chain readiness, review investor availability and appetite, and evaluate the government’s own capability to oversee the project.
Project Compilation
The rigorous sector analysis allows the government to compile a national registry of potential projects. By comprehensively examining each value chain step, the government can decide whether or not a project should be considered for the final road map while ensuring comprehensive coverage of the economy and alignment with national development goals.
National Project Prioritization
Governments can then rank the list of projects according to private- and public-sector priorities. The ranking uses private-sector and government-sector criteria. Officials can assign weights to each of the criteria as appropriate for their country’s particular circumstances. The private-sector criteria help to vet the capability of potential private partners by assessing their readiness to participate in specific PPP projects.
Time Line Development
The government completes the road map by establishing time lines for the PPP projects that have passed through the prioritization filters.
The roadmap—along with supplementary checks on affordability, finance, and value for money—will ensure the use of PPPs in a manner that fits with national needs and that promotes each country’s economic ambitions.
Nevertheless, GCC governments need to proceed with caution when implementing the road map. Although the road map helps a government determine which projects it should consider, it cannot tell the government how to manage these projects. Nor does it show how the government’s accounts should handle the complex, long-term liabilities that may arise from PPPs.