26 October 2005
Private-Public Partnerships Could Help Reduce 90 Per Cent of World Poverty, World Economic Forum Official Says in Second Committee Presentation
She Cites Potential in Sparking Growth by Financing Infrastructures, Services
(Issued on 25 October 2005.)
NEW YORK, 24 October (UN Headquarters) -- Private-public partnerships could play a key role in financing much-needed infrastructures and services in developing countries, sparking economic growth and reducing up to 90 per cent of the world's poverty, a member of the World Economic Forum told the Second Committee (Economic and Financial) today.
Presenting the outcome of multi-stakeholder consultations on "The role of public-private partnerships, risk mitigation and capacity-building in mobilizing resources for development", Barbara Samuels, Senior Advisor of the World Economic Forum's Financing for Development Initiative, stressed the need for better mobilization of private-sector capital and expertise in developing such vital infrastructure services as water, sanitation, energy and transport.
She said infrastructure financing had recently been spiralling downwards, as fiscal pressures on countries grew tighter and monies for infrastructures shrank. Host countries for private-public partnerships had decreased their spending on infrastructure between 2 and 4 per cent of gross domestic product and were decentralizing projects to States and municipalities. Official contributions to infrastructure were also lacking, with World Bank loans falling by 11 per cent over the past five years, and private capital going under-invested.
In order to reverse that trend, she emphasized the urgent need to reposition official sector agencies like bridges, catalysts, and market makers, helping to mitigate systemic risks that the private sector would not assume, especially regulatory and currency risks. They could also provide loans and grants to alleviate absolute poverty, which should include subsidizing access to basic services, and mobilize experts to create enabling environments for investment.
She noted that the existing capacity of many official institutions was underused due to internal constraints in approving transactions and working effectively with the private sector. Official institutions were often seen as competing with the private sector and each other for the best projects, with no takers for the more difficult transactions and countries. To enhance their effectiveness in harnessing private-sector capital, the management processes, capital structures, and charters of official institutions must be updated and realigned to maximize the leverage of official-sector capital.
Addressing the role of private-sector partnerships in the specific areas of water and sanitation, education, and health, Richard Samans, Managing Director of the World Economic Forum, stressed that a private company had superior resources which, in terms of distribution networks and expertise, compared to Government agencies. The private sector also tended to take more practical and performance-based approaches to projects, following the most cost-effective routes.
He said private philanthropy already made up a substantial share of official development assistance (ODA) in many countries, sometimes exceeding foreign direct investment (FDI), and providing both cash and in kind assistance amounting to $4 to $6 billion a year. Currently, public-private partnerships were being approached in an ad hoc manner, but if they were viewed as integral to development assistance, that assistance could double.
Indeed, the private sector's most effective role was not only that of a donor, but also that of an equal partner in development projects, he said. The core assets most relevant to development projects must be thought through, whether intangible -- as in marketing distribution networks -- or tangible assets -- such as machinery -- and see how they could improve the company's operating environment and societal well-being while advancing economic opportunity and growth.
He said that international organizations like the United Nations and others could play a role in clarifying the risks and benefits of development projects, as many communities were fearful and sceptical about private-sector engagement. While it was true that companies were making profits, there were win-win solutions for both parties.
During the ensuing discussion, which was moderated by Oscar de Rojas, Director of the Financing for Development Office in the United Nations Department of Economic and Social Affairs, delegates asked why Africa's development lagged behind, despite the apparent rise in investments flowing to the continent.
Ms. Samuels responded by saying that large amounts of money were flowing to the continent, but they were being concentrated in only a few sectors. According to the latest figures, investments had risen by 12 per cent in Africa's telecommunications sector, but fallen by 20 per cent in other sectors due to a high-level of risk aversion. Both the public and private sectors must break their silence and begin talking about appropriate the financial products needed to assuage investors' aversion to risk.
Responding to another query, about the possibilities for public-private partnerships, Mr. Samans said much experimentation had taken place in recent years, leading to more refined public-private partnerships and a growing level of comfort with the general concept. However, robust legal and financial institutions, along with good bankruptcy codes, were needed before investors would be able to allocate their resources effectively.
He added that 15 years ago investment capital for emerging markets had been lacking, but world economic growth and rising domestic savings had changed that scenario. Managing investment risk, rather than lack of capital, had become the prime issue facing investors. Development institutions could mitigate that risk by introducing financial products that were accompanied by co-financing instruments.
Asked whether corporate social responsibility and financing for development were related, Mr. Samans said that appealing to a corporation's moral sense of duty was unlikely to result in more funds for development; a better way to approach the problem would be to provide more market incentives, encouraging actors to come to the table of their own volition.
Second Committee Chairman Aminu Bashir Wali (Nigeria) noted in his introductory remarks that the public sector had become more of an enabler over the past few decades, setting the rules and unleashing private-sector potential in pursuing economic growth and employment. At the same time, the private sector had assumed the challenge of using the strengths of both sectors to address the question of resources in pursuing development goals.
The Second Committee will meet again at 10 a.m. on Wednesday, 26 October, to hold a dialogue with the Regional Commissions on "Globalization and Interdependence".
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