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Efforts to marry public and private resources through PPPs and blended finance have failed to engage private capital for SDGs, – says the 2019 UNCTAD’s Trade and Development Report

UNCTAD in its recent report on Trade and Development have critisized the effectiveness of the innovative financial instruments such as PPPs and blended finance for implementing the 2030 Agenda and achieving the SDGs.

According to UNCTAD there is an unambiguous evidence that efforts to marry public and private resources through PPPs and blended finance have failed to unlock available pools of private capital (TDR 2015; Eurodad, 2018; European Union, 2018). According to UNCTAD, there seems little likelihood that the expansion of such instruments as PPPs and blended finance will be effective, particularly, when it comes to financing the projects in fragile contexts and riskiest environments (LDCs or countries exposed to climate-related challenges). Even in the best-case scenario, such tools are simply likely to increase funding for “mega projects” rather than the smaller, more inclusive and environmentally sustainable ones.

Public–private infrastructure financing tends to be more expensive than public financing alone, – says the Report.

PPPs in infrastructure have, moreover, undermined transparency and public accountability as they frequently appear as “off book” transactions. Infrastructure is a public good that must be broadly accessible, but accessible and inclusive infrastructure may conflict with the objectives of private investors who seek to recover upfront investment costs through user and other fees. Blended finance introduces additional opportunity costs. It is increasingly being used as aid, which typically favours private partners from donor countries, while being driven by profit rather than public interest (The Economist, 2016). Private participation in infrastructure is not only costly, it is also highly concentrated geographically and sectorally. It clusters in commercially attractive sectors and countries that are more likely to offer what are termed “bankable” opportunities (which are rarely low income countries, LICs) (Tyson, 2018: 11; TDR 2018). Middle income countries (MICs) have received an estimated 98 per cent of all private infrastructure financing between 2008 and 2017, and of this 63 per cent went to upper MICs (Tyson, 2018: 11). LICs, which have the greatest need for infrastructure development, have received less than 2 per cent of total private investment financing for infrastructure in the last decade. From 2011 to 2015 International Development Association (IDA) countries received less than 4 per cent of the value of infrastructure projects in developing countries with private investment (Lee, 2017: 7). These data demonstrate the attitude of private investor to risk-taking in fragile context of LICs.

Previously, World Bank has acknowledged that, despite its efforts, PPPs have attracted very little private investment. Even where they have been more successful, the risks were generally borne by the Bank and host country governments (IEG of the World Bank, 2014).

The existing figures cast serious doubts on the leading desirability of private financing as the mechanism for delivery of the SDGs.

By Katsiaryna Serada

Read the full report

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