KUALA LUMPUR: Developed economies are using Public Private Partnerships (PPPs) in a fashion more appropriate for developing economies, according to a major new research project from the Association of Chartered Certified Accountants (ACCA).
The research ‘Taking Stock of PPP and PFI around the world’ commissioned by ACCA and conducted by Manchester Business School, is the first global comparison of different countries’ PPP programmes.
The report uncovered that developed economies formulated sound institutional frameworks for PPP but struggled to deliver value for money.
Meanwhile, developing economies have poor PPP monitoring and review frameworks but are forging ahead with PPP projects that deliver otherwise unaffordable key infrastructure.
Professor Graham Winch of Manchester Business School said, “Many developed economies are still approaching PPP as if they were developed economies: hoping to use PPP to procure infrastructure they can’t afford thanks to public spending constraints.
“It delivers infrastructure, but at a far higher cost than otherwise might be expected.
“Is this cost too high? “Taxpayers and public spending watchdogs seem inclined to think it is.
“This approach has resulted in a pretty bad reputation for PPP amongst the public in some developed economies, but developing economies shouldn’t let this put them off PPP.”
Jennifer Lopez, country head of ACCA Malaysia, added, “The implementation of PPP in Malaysia has been instrumental in accelerating the nation’s economic growth through greater investment that subsequently led to corporate expansion.
“It will be interesting to see how PPP develops in the future, with improvements required in both developed and developing economies.
“While it could be said that Malaysia’s PPP model is approaching maturity, there are still several institutional improvements to be made.”
The report found that there was no common PPP definition around the world.
Broadly, it is the use of private finance to provide public infrastructure but agreement generally ends there. Only in rare cases can private finance offer greater value for money than traditional public sector procurement.
Private finance is generally more expensive than public finance, there is a high premium payable for risk transfer, and there are important accountability issues around the commitments made by the public sector to private finance providers.
The additionality of PPP – providing otherwise unavailable funds for public procurement – was more likely to be of benefit in developing countries, where capital typically comes from outside the country (due to low national wealth) and the economic stimulus is relatively larger.
Meanwhile, accounting treatments matter more in developed economies. Accounting treatment of PPP is likely to have a greater impact on the attractiveness of PPP in countries with public spending constraints such as developed countries because it determines the border between ‘on’ and ‘off’ the public balance sheet.
The evidence is that accounting treatment is not a subject of national debate in countries without strict public spending constraints.