Applied Research Center for Public Policies (CIAPP)

PPPs can Fill Infrastructure Investment Gap Left by Public Sector

By Gabriela Mastache | Mon, 12/30/2019 - 10:00

In an environment where access to public resources for the financing of local and federal infrastructure projects has been restrained, the participation of the private sector becomes crucial, says Rodolfo Gómez, CEO of Applied Research Center for Public Policies (CIAPP). “The fewer the fiscal resources available for investment, the more the public sector will have to turn its eyes to the private sector and work together through entities like Public Private Partnerships (PPPs).”

Gómez says that the CIAPP, an initiative focused on assisting the legal and financial structuration of projects, has been a long-time advocate for the involvement of the private sector in the execution and operation of different projects that traditionally have been the purview of the public sector. However, the current uncertainty and lack of clarity regarding the structuration of projects has delayed the infrastructure sector. “The private initiative is trying to define how they can participate alongside the public sector and which strategic projects will be open for their participation.”

Part of the problem, Gómez says, is that the current federal administration took too long to define those strategic projects. “Whenever there is a change in government, there is always a natural adaptation period. However, not only did this administration take longer, but requests from the private sector for continuity on past strategic projects were ignored.” Moreover, Gómez says that the private initiative was hoping for a more disseminated budget rather than expenses concentration. “We understand and respect the social focus of the budget and the federal administration. However, concentrating many resources in four projects is not optimal, especially considering the adverse economic conditions, both internally and externally.” 

Though the current administration has worked steadfastly to deliver a responsible budget, Gómez says that there is a general worry that in the 2020 Federal Expenses Budget there are significant reductions in sectors that are deemed strategic, such as transport, telecommunications and healthcare. “We hoped that the budget would allocate resources to more projects, such as hospital infrastructure.”

While the lack of resources for the development of infrastructure projects is a significant problem, Gómez says that it also opens up the possibility for the participation of the public sector, either through PPPs or similar schemes, which is encouraging. “The public sector is eager to tackle different strategic problems; however, it is also worried about the lack of investment resources. This has led the sector to look for alternative financing mechanisms for different types of projects.”

The participation of the private sector in both, local and federal infrastructure projects becomes even more important when considering the large need of infrastructure projects in municipalities in a context of increasingly tighter budgets. “The problem is that many municipalities are still waiting for the federal administration to allocate resources that will help them in this regard, when the truth is that these resources are not going to appear.”

While the participation of the public sector would help deliver several projects, Gómez says that one of the largest problems PPPs face is the negative perception that surrounds them. “Unfortunately, because of projects that did not end as they should have or because they were badly planned, PPPs have a bad reputation.” Gomez says that detractors of PPP’s usually argue that such figure is used to hide public debt. “There is a lot of noise to discredit a figure that has a lot of advantages, and offers more transparency and solidity than other types of legal entities.”

In this scenario, Gómez says that the private and public sectors need to trust each other. “There needs to be a cultural shift. We need to talk openly about these legal figures and generate trust and awareness regarding what they can offer. Many relevant public actors perceive the figure of the PPPs as highly plausible, but there is a great deal of mistrust.” The lack of trust is also perceived in the private sector. “It is hard for the private initiative to assimilate itself as a partner of the government. However, those companies that have ventured to do so have had positive results.”

Despite the existing mistrust, Gómez says that those involved in public policy decisions need to promote the use of PPPs or similar figures. “Weak economic growth in 2019 will generate a good deal of pressure on states and municipalities. Although it appears that 2020 will also be complicated on the economic front, we will see things start moving.” In this sense, Gómez says that there is good opportunity for the construction of basic infrastructure. “Public lighting, recuperation of public spaces, hospital and educational infrastructure, as well as ports infrastructure, are sectors that offer significant participation opportunities for the private sector.”

Gabriela Mastache Gabriela Mastache Senior Journalist and Industry Analyst