PSD Blog - The World Bank Group

Building a stronger Haiti

Editor's Note: Frederic Meunier is a consultant working on the Doing Business "Dealing with Construction Permits" indicator.

Today, Canada is hosting the first conference on Haiti’s reconstruction. The conference aims at helping Haiti to meet its numerous challenges. More than 100,000 people have died following the devastating earthquake in Port-au-Prince on January 12, 2010. The shocking collapse of most of Port-au-Prince’s buildings left an estimated 1.5 million people homeless.

Two key factors related to the state of construction regulations aggravated the devastation caused by the earthquake. First, the absence of a national building code meant that a significant majority of buildings in Port-au-Prince were constructed with poor building standards. A recent study by the OAS highlighted some of the problems with Haitian building standards – “slopes without proper foundations, insufficient steel or improper building practices, etc.” Second, cumbersome administrative requirements for construction approvals provided a disincentive for compliance and meant that most buildings were constructed without sufficient oversight by the authorities. 

Africa Competitiveness Report 2009

The Africa competitiveness report came out in mid-December 2009 and seems to have gone pretty much unnoticed in the PSD blog. That is a shame.

The report is developed by World Economic Forum, Africa Development Bank and the World Bank Africa. It uses three different approaches to analyze Africa competitiveness (macroeconomic competitiveness, microeconomic competitiveness and case studies), making it quite useful for colleagues working on PSD issues in Africa. It leaves the reader with the clear understanding of the challenges Africa faces. It also highlights the country specific diagnostic results and, therefore, the country specific policy advice needed for our client countries.

Some of the results that struck me and raised questions were from the chapter on Africa’s costs and competitiveness. The report points to the fact that in Africa, the invisible costs (due to poor quality of business environment) and indirect costs (transport, regulatory environment and taxes) are higher than in other regions (see figure 16A of the report).

Weekend Reading: Unemployment Edition

Can development workers win wars?

Is transport infrastructure the most important aspect of urban evolution?

The Treasury's courtship of the blogosphere.

Is China's changing worldview bad for business?

America's largest retailer: it's not Wal-Mart.

Why are some marathons more volatile than others?

The EU's role in reducing state fragility in Sub-Saharan Africa.

Thoughts on migration: Kosovo edition.

Unemployment

What America can learn from Europe about unemployment.

Other difficulties that arise from high unemployment.

Plus, unemployment charts galore from Calculated Risk.

A less pessimistic take on today's numbers (it's still ugly).

Why employment is down and GDP up? It's all about productivity.

The Obstacle to Renewable Energy (hint: it isn't about costs)

Columbia University's Geoffrey Heal asks, "can renewable energy save the world?". The answer is dependent on infrastructure and technology, rather than cost:

Where does this leave us with renewables as a solution to the problem of climate change? We can replace some fossil fuel power with renewable power without a major cost increase, but we cannot hope to replace a major fraction of our fossil power with intermittent power sources such as wind and solar – unless we can develop storage technologies. Being able to store power and smooth the output of intermittent power sources would greatly enhance the attractions of renewable power.

The bottom line is that neither costs nor capital requirement will prevent us from decarbonising the electricity supply. The real obstacle to doing this largely with renewables is our current inability to store power, and as long as we cannot store power we will need to use non-renewable sources like nuclear and coal with carbon capture and storage.

Probably a good place to invest some stimulus money.

The day you’ll be able to stumble upon development funds

Quite literally…

Imagine walking around the streets of DC with your mobile phone in hand. You "point" to, say, a building or a bridge and an application on the phone allows you to detect whether the project is a beneficiary of some of the $787 billion allocated by the US Government American Recovery and Reinvestment Act. The amount of money spent for the building and the name of the beneficiary are also displayed. Public spending could not get more transparent – and tangible – than this. Science fiction? Not anymore, thanks to the augmented reality mash-up just released by the ever inspiring folks at Sunlightlabs (hat tip: David Osimo).

 

Should the public sector guarantee private sector financing for PPPs?

The financial crisis and subsequent credit crunch has greatly reduced the options available to governments regarding PPPs. The reason is very simple: There is no longer enough money available for long-term private infrastructure investment. However, I see this as a temporary situation, as the rationale for PPPs remains as strong as ever. 

In the meantime, governments in many countries are in the middle of procuring large PPPs and therefore in need of solutions to the temporary dislocation in credit markets. More and more governments have been turning to public sector guarantees of private sector loans for PPP projects as a way to overcome shortfalls in available financing.

The question is: Is this solving the problem? There are voices that say this doesn’t make sense, why should the public sector guarantee a loan by the private sector? Isn’t the rationale behind PPPs to get the private sector to put its own capital at risk?

Examples of Chile’s innovative approach to PPPs

As I discussed in my previous post, Patricio Mansilla of Chemonics International has explained to me that Chile has been at the forefront of innovation in the design of PPPs. The government has experimented with a bidding mechanism for PPPs based on the Least Present Value of Revenues (LPVR). The innovative feature of  the LPVR approach is that contracts always have a variable term date, in contrast to normal PPPs, which have an end date set in advance. Considering the number of comments generated by the previous post, I thought I would provide a bit more detail on the benefits of this approach, plus a few examples of how LPVR PPPs work in practice.

First, the advantages of this approach over fixed term bidding concessions, as I see them:

• The LPVR is concessionaire friendly, which allows for many bidders on each deal. Lack of bidders is a problem on some PPP deals in Latin America.
• Another advantage of the LPVR approach is that it is easy to enforce compared to normal fixed-term contracts, which are exposed to renegotiation risks that sometimes can threaten the solvency of the consortium and thus the project as a whole.
• The government’s only burden to enforce the concession is to closely monitor the concessionaire’s operational cash-flow revenue. There is still a need to verify solvency and overall performance and maintenance of the project itself, but those can be achieved under much less pressure. After all, these burdens are mitigated by the concessionaire’s interest in recovering its investment. There is no chance for extra profit, and delays only postpone revenue recognition.

Despite crisis, positive outlook for PPPs in Russia

Editor's Note: The following is a joint submission by Filip Drapak and Natalia Reznichenko.

Many countries are experiencing a big infrastructure gap, and Russia is no exception. The Russian government is well aware of the problem, and it has announced that it will invest about US$1 trillion over the next 10 years in improving infrastructure. But how can the government raise that kind of capital? The expectation is that the private sector will contribute most of the financing though a Public Private Partnership (PPP).

While Russia does have some experience with PPPs, the track record so far has been spotty. We might mention in this regard one project that is sometimes considered to be the first PPP in Russia—the South-West Wastewater Treatment plant of St. Petersburg. The project was agreed upon by the Russian, Finnish and Swedish governments all the way back in 1986, but due to a lack of public financing the project was stopped. It was resurrected as a PPP in 2002 and formally procured as a 12-year BLT (Build-Lease-Transfer) contract.

Latin America: From disappointment with privatization to innovation in PPP’s

Editor's Note: Bernardo Weaver is a Wharton MBA in Finance Candidate and a consultant at the World Bank working on Public Private Partnerships.

Privatizations in the 80’s and 90’s in Latin America proved to be disastrous by many accounts. The success of the Thatcher administration in the United Kingdom did not transfer well to the other side of the Atlantic, at least south of the US. Many Latin American politicians found an easy target in privatizations: The sale of state-owned assets at sub-par value.

Politicians also conveyed the idea that the state and the citizens are identical. As a result, the population thought that their assets were sold at fire sale prices to big international companies. These international companies—often connected with aggressive animals like sharks and lions (and even monsters)—became vilified. Governments did not respect clauses and tariff readjustments, and the famous instability of the region was again reconfirmed.

Nigeria: Taking the lead on PPPs in Africa?

For quite some time, I’ve suspected that Nigeria would become the leader in Africa for PPPs. Several projects have been announced, and serious government interest has been demonstrated by discussion on policy, legislation and deal flow. The Global Legal Group has provided excellent insight into this in their 2007 Guide to PPP/PFI Projects. In a surprisingly short amount of time, Nigeria has been able to sign a 25-year concession agreement with Bi-Courtney Consortium, concessionaires of the Lagos-Ibadan Motorway (reportedly 27 months). Nigeria has also utilized a PPP-approach to areas such as ports, tourism, healthcare and housing.